Lab Report, Climate-Related Corporate Reporting: Where to Next?

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Climate-related corporate reporting Where to next?

October 2019

Financial Reporting Council Climate-related corporate reporting – where to next? 2

Contents Examples used Our report highlights examples of current practice Quick read 3 that were identified by the Financial Reporting Lab Introduction 7 (Lab) team and investors. Not all of the examples are Regulatory and market overview 8 relevant for all companies, and all circumstances, but each provides an example of a company that Section 1 – Investor expectations and company views 10 demonstrates an approach to useful disclosures. Governance and management 11 Highlighting aspects of reporting by a particular entity should not be considered an evaluation of Business model and strategy 13 that entity’s annual report as a whole. Investors have Risk management 18 contributed to this project at a conceptual level. Metrics and targets 22 The examples used are selected to illustrate the principles that investors have highlighted and, Section 2 – Appendix A – questions and recommended disclosures 26 in many cases, have been tested with investors. Governance and management 27 However, they are not necessarily examples chosen Business model and strategy 28 by investors, and should not be taken as confirmation of acceptance of the company’s reporting more Risk management 29 generally. Metrics and targets 30 Responding to feedback Section 3 – Appendix B – examples of developing practice 31 In 2019 the Lab ran a stakeholder survey. As part Governance and management 37 of this survey we asked users of the reports for Business model and strategy 41 feedback. We received feedback that the example disclosures were of particular value to users. Risk management 53 Responding to this feedback, we have included more Metrics and targets 65 examples within this report than in previous Lab Section 4 – Appendix C – participants and process 78 reports. Whilst it makes the report longer, we hope it adds to the overall value of this report. Section 5 – Appendix D – regulatory and market initiatives 80 If you have any feedback, or would like to get in touch with the Lab, please email us at: [email protected]

Quick read

Overview Investor views Societal understanding of climate change and the need to take action has increased Investors are increasingly calling for companies to report on challenges, targets and over recent years, leading to an increase in both public discourse and government activities to support the action they are taking on this issue. This project has received initiatives. The 2015Paris Agreement’s central aim to restrict global temperature an unprecedented amount of investor engagement, and this report focuses on rise to 2 degrees above pre-industrial levels, and to pursue efforts to limit the disclosures by companies that better meet investors’ needs. increase to 1.5 degrees, set a new ambition for the world’s response to climate The outcomes of climate change, including exact transitional and physical risks, and change. The scope of this challenge is becoming more widely understood. pathways we will take, are uncertain. As both companies and investors increasingly In this context, investors and the broader financial system are seeking better look to the future, there is a gap between the expectations of investors and information to make more informed decisions about capital allocation and to price reporting practice, both in the quality and granularity of information provided. risk. While different companies will be affected by climate change in different Disclosure is developing, and as investor approaches become more sophisticated ways, many will need to respond to potential increases in cost and/or decreases and increasingly affect capital allocation decisions, further development will be in revenue. The cost of water and energy, for example, may increase and assets necessary. This report sets out how companies can fill this gap and move towards (for example stock, investments, loans or infrastructure) may become stranded in more effective and comprehensive reporting. specific locations. For some companies, climate-related issues are material now, Investors outlined that they would like companies to articulate: with impacts already disrupting supply chains and changing consumer behaviour. For others, climate-related issues are key to longer-term strategic planning • how boards consider and assess the topic of climate change; decisions. Climate-related risks are foreseeable, and as the implications become clearer, more are likely to adapt their behaviours and investments making the • whether, and how, the business model may be affected by climate change, potential impacts a shorter-term issue for all companies. whether it remains sustainable, and how the company may respond to the challenge posed by climate change; The UK Government has set a target to bring all greenhouse gas emissions to net • wha t the opportunities and risks are, including the prioritisation of risks and their zero by 2050. Other governments are also realigning around such targets, with likelihood and impact; investors beginning to follow, for example as part of the UN-convened Net-Zero Asset Owner Alliance. This target provides a unique 30-year signal for the future • what changes the company might need to make to strategy to capitalise on a for which both companies and investors can aim. Given this direction, there is an changing climate and related opportunities; increasing demand for companies to respond, and report on what the business model looks like in the future and how it intends to get there. • wha t scenarios might affect the company’s sustainability and viability, and how; and

“There is a not inconsiderable risk that the climate scientists are right, therefore • h ow the impact is measured and how the company measures the climate-related challenges and the success of its strategy through strategically aligned, reliable, it’s irresponsible for boards not to be considering and looking at issues around transparent metrics and financially-relevant information. climate change” – Investor

These areas reflect elements of a company’s operating approach, and areas of On 2 July 2019 the UK Government announced, in its Green Finance Strategy, the assessment and consideration by investors. They are also consistent with the expectation that listed companies and large asset owners should disclose in line principles set out in the Lab’s previous work on business models, risk and viability with the TCFD recommendations by 2022. Given the investor support for the TCFD, and performance metrics, and the recommendations of the Task Force on Climate- and the Green Finance Strategy expectation, the Lab’s report recommends that related Financial Disclosures (‘TCFD’) framework. companies use the TCFD as a framework for thinking about and reporting on climate change. For those not familiar with the TCFD, a short summary and main disclosure Task Force on Climate-related Financial Disclosures recommendations can be found on page 9. The discussions that we had with project participants soon coalesced around the To help companies apply the principles of the TCFD framework, the Lab has TCFD framework. Many companies reported that the TCFD had helped them align also developed a series of questions they should ask, to address the areas that their thinking and discussions, which provided a clearer route to reporting. Investors investors seek to understand. Consideration of these questions, by both companies were also very supportive of TCFD reporting. As a consequence, rather than creating and investors, will lead to more informative reporting and better discussions. a separate framework, this Lab report is structured around the TCFD framework. Not surprisingly, some investors expressed a desire for more reporting by those The TCFD, established by the Financial Stability Board (FSB), was tasked with companies where their business models were more at risk, or which were higher reviewing how the financial sector could take account of climate-related issues. carbon emitters. In 2017, the TCFD published a report which set out four core elements of This report focuses on climate change, but many of the reporting recommendations recommended climate-related financial disclosures ('TCFD Core Elements'): in this report could equally apply to other sustainability-related topics, including the • Governance: The organisation’s governance around climate-related risks and workforce (which will be the subject of a separate Lab report). opportunities; Role of Investors • Strategy: The actual and potential impacts of climate-related risks and While the focus of this project is on reporting by companies, it is clear that investors opportunities on the organisation’s businesses, strategy, and financial planning; are seen as part of the solution to managing climate change. Investors themselves • Risk management: The processes used by the organisation to identify, assess, are also under pressure to report on climate issues under new regulations and and manage climate-related risks; and client requests, where mandates from asset owners are increasingly referring to environmental, social and governance issues. • Metrics and targets: The metrics and targets used to assess and manage relevant climate-related risks and opportunities. Indeed the TCFD framework and the UK Government’s expectation relate as much to investor reporting as they do to company reporting. Information needs to flow These areas align closely with the questions about which investors seek information. through the ecosystem in order to meet the need not only for decision-useful information, but also to meet the needs of investors in carrying out their own reporting.

Regulatory requirements A company's activities may impact the environment, as well as the effects of “ At the end of the day I want comfort that the company is preparing for many climate change having an impact on the company. Companies should, therefore, different outcomes, as no one knows” – Investor consider the likely consequence of climate change on their business decisions, in addition to meeting their responsibility to consider the company’s impact on the environment. How to read this report This report is divided into five sections. Whilst those seeking a full understanding While in the UK there is no requirement to report on climate change specifically, are encouraged to read the report sequentially, given its breadth, we have outlined there are many reporting requirements that may require companies to address below the contents of each section to enable readers to go directly to those of most climate-related issues. The Board has a role to consider the company's long-term relevance: success. The Companies Act 2006 ('the Companies Act') requires companies to provide information about how the directors have performed their duty to promote • Section 1 ontainsc investor and company views on the four TCFD core the success of the company, having regard to the matters set out in section elements – governance, business models and strategy, risk management and 172, including environmental matters. The Strategic Report requires disclosure metrics and targets. Each includes a set of questions companies should ask of principal risks and uncertainties and relevant non-financial information.The themselves to help develop their reporting. The section also outlines areas of UK Corporate Governance Code 2018 (the Code) requires reporting on how developing reporting practice and links to examples in Section 3. There is much opportunities and risks to the future success of the business have been considered interconnectivity between the four TCFD core elements. Some tips on how to and addressed, and there are specific requirements (including theStreamlined bring this information together in a coordinated way are provided on the next Energy and Carbon Reporting requirements) that require information on the impact page. of the company’s business on the environment. • Section 2 brings together the questions for companies and disclosure The FRC has also highlighted that a company’s financial statements should, recommendations across the TCFD core elements to allow for easier where material, ‘reflect the current or future impacts of climate change on their consideration. financial position, for example in the valuation of their assets, assumptions used • Section 3 provides examples of developing reporting practice. These extracts in impairment testing, depreciation rates, decommissioning, restoration and other illustrate how companies are trying to meet the reporting challenge. As changes similar liabilities and financial risk disclosures’. in this area are dynamic, examples identified at this stage are likely to require further development in the future in order to respond to investors’ needs. The Conclusion examples are organised around the same four TCFD core elements, allowing Climate-related challenges will affect companies differently, however, investors readers to go directly to the examples most of interest to them. consider the issues to be material to a wide range of businesses. There is inherent uncertainty in this area, but those companies and investors that are addressing and • Section 4 provides a list of those companies and investors that participated in this considering climate-related issues recognise the benefit that comes from a robust project. consideration of the future challenges facing the company, and a connected benefit • Section 5 oversc the main regulatory and market initiatives relevant to to feeling more able to respond and reposition as necessary. companies’ disclosure on climate change, and some broader input on investor Reporting on climate-related matters requires companies to ask themselves requirements and activity. challenging questions, make reasonable assumptions on the information available, and develop their strategic approach from there. Reporting then flows from this assessment.

Tips for approaching climate considerations and disclosure

Many companies are considering how best to address climate-related issues. Throughout this project the Lab has seen companies take a range of approaches, many of which appear to be working successfully. However, some of the key elements that appear to be helping companies most effectively to address the issue are outlined below. A number of these are not climate-related, but may help companies to address challenges the company faces in a more coordinated way: • A proper consideration of this topic starts with appropriate governance and • Other organisations have highlighted that asking ‘how do we respond to climate oversight. Senior management and board engagement is necessary to ensure change?’ can be an overwhelming and alienating question. They have worked a coordinated approach, that a strategic view is taken, and that resources are hard to ask company-specific and operations-specific questions, which they have appropriately allocated. found a more helpful approach. • Climate-related issues impact many areas of a business. It is important to be • Some companies have also reassessed their risks within this context – trying strategic to ensure that these areas all coordinate to make the best decisions to draw out whether, at a cross-organisation level, there is a different risk level and get the best outcomes. Different companies have taken different approaches to that which they may identify in either a top-down or bottom-up risk format. to this, with some having a more decentralised structure, others using cross- Understanding management reporting tools in this context can be important. firm working parties, and still others running a ‘nominated’ person approach with input from other areas. Any of these can work depending on the company, • There is also a challenge, however, in not narrowing down the possible risks too although most appear to need one point of contact/coordination, which can early. Companies suggested thinking as broadly as possible, including considering work most effectively by naming a responsible person. whether the risk management process itself is capturing the interconnected elements of the risks and opportunities. • As so many operational areas of the business are coming together to discuss the topic it is important to ensure that they are • Many reported that the main help had been a desire and/ discussing the same things. One approach to this is HSBC’s or push to just get started. The topic is broad, but this ‘Sustainable Financing Data Dictionary’ (HSBC Holdings plc, approach allowed them to begin to understand what they page 33). knew and didn’t know, what more information was required, and to begin to ask how that could be sourced. Some reported finding a roadmap of planned disclosure a helpful indication of where they aimed to be and what they were trying to achieve. (Roadmaps are disclosed by Unilever PLC, Barclays plc, SSE plc and DS Smith plc pages 34, 35 and 36).

Companies Act 2006 Requirements "The board should assess the basis on which the Regulatory and market company generates and preserves value over the overview Section 414C of theCompanies Act provides that: long-term. It should describe in the annual report how "The strategic report must contain… (2)(b) a description opportunities and risks to the future success of the Expectations around the reporting of climate-related of the principal risks and uncertainties facing the business have been considered and addressed, the issues have grown over recent years, especially the company… [and]… The review must, to the extent sustainability of the company’s business model and expectations of investors and other stakeholders. necessary for an understanding of the development, how its governance contributes to the delivery of its performance or position of the company’s business, strategy." Whilst there is no specific requirement to report include… (b) where appropriate, analysis using other on ‘climate change’, companies should be providing The Code also expects boards to be considering and key performance indicators, including information information on their impact on the environment, their responding to emerging risks. relating to environmental matters and employee principal risks, how directors have considered the long- term success of the company and, where material, the matters.“ IFRS requirements impacts on their financial statements. Sections 414C (7) equiresr disclosures, to the extent Although the financial statements contain limited necessary for an understanding of the development, forward-looking information, climate-related risk could FRC statement on the Government’s Green performance or position of the company’s business, have a significant affect on the carrying value of the assets Finance Strategy on the impact of the company’s business on the and liabilities reporting in the financial statements in To coincide with the Government’s release of the Green environment. certain industries. There is an expectation that, if material, information about how climate-related risks have been Finance Strategy on 2 July, the FRC published a statement Disclosures regarding principal risks and uncertainties factored into impairment calculations, for example, should saying that the effect of climate change on society and may also be required under the Companies Act where be disclosed. business is one of the defining issues of our time: climate-related issues are material, and will likely form "The Boards of UK companies… should therefore part of the newer section 414CB requirement to consider The starting point is for companies to consider materiality. address, and where relevant report on, the effects of the principal risks that the company poses to the outside The definition as set out in IAS 1 is that “items are climate change (both direct and indirect). Reporting world more generally. material if they could individually or collectively, influence the economic decisions that users make on the basis of should set out how the company has taken into In their Strategic Report, companies are now also the financial statements”. As investors increasingly factor account the resilience of the company’s business required to make a Section 172(1) statement describing in climate-change considerations into capital allocation model and its risks, uncertainties and viability in both how directors have had regard to the matters set out decisions, this information in the financial statements is the immediate and longer-term in light of climate in section 172(1)(a) to (f) of the Companies Act when likely to become increasingly material. change. Companies should also reflect the current or performing their duties under section 172, which in future impacts of climate change on their financial subsection (1)(d) relates to the impact of the company's Other market initiatives and reporting position, for example in the valuation of their assets, operations on the community and the environment. assumptions used in impairment testing, depreciation requirements rates, decommissioning, restoration and other similar UK Corporate Governance Code 2018 There are a number of other initiatives and reporting liabilities and financial risk disclosures." The Code also requires Boards to discuss how the requirements relevant to climate-related issues, and these Alongside the Green Finance Strategy, the FRC also matters (including impact on the environment) set out can be found in Section 5: Appendix D – regulatory and joined the Pensions Regulator, the Prudential Regulation in section 172 of the Companies Act 2006. Provision 1 of market initiatives. Authority and the Financial Conduct Authority to publish the Code states that: a joint-regulatory statement on this topic.

The Task Force on Climate-related Financial The recommended disclosures on the TCFD, across the by 29 per cent from 2.8 in 2016 to 3.6 in 2018. At the four core elements of disclosure, are outlined below in same time, the percentage of companies that disclosed Disclosures Figure 1. information aligned with at least one of the Task Force’s The TCFD, established in December 2015 by the Financial recommendations grew from 70 per cent in 2016 to Stability Board (FSB), was tasked with reviewing how the In June 2019 the TCFD released its second status report 78 per cent in 2018”. In a survey conducted with users financial sector could take account of climate-related on the uptake of its recommendations. The report noted and companies, 76 percent of users stated that they issues. The TCFD was asked to develop recommendations that nearly 800 organizations have expressed their are already using climate-related financial disclosures in for more effective climate-related disclosures that: support for the TCFD recommendations. “The review of their decision making process. The report also highlights reports from over 1,100 large companies across multiple examples of how companies are reporting against the • could promote more informed investment, credit, and sectors in 142 countries found that the average number TCFD framework. insurance underwriting decisions and, of recommended disclosures per company has increased

• in turn, would enable stakeholders to understand Figure 1: TCFD recommended disclosures better the concentrations of carbon-related assets Recommendations and Supporting Recommended Disclosures in the financial sector and the financial system’s exposures to climate-related risks. Governance Strategy Risk Management Metrics and Targets

In 2017, the TCFD published a report which set out four Disclose the organization’s Disclose the actual and potential Disclose how the organization Disclose the metrics and targets core elements of recommended climate-related financial governance around climate- impacts of climate-related risks identifies, assesses, and manages used to assess and manage related risks and opportunities. and opportunities on the climate-related risks. relevant climate-related risks and disclosures that apply to organisations across sectors and organization’s businesses, opportunities where such jurisdictions: strategy, and financial planning information is material. where such information is • Governance: The organisation’s governance around material. climate-related risks and opportunities. Recommended Disclosures Recommended Disclosures Recommended Disclosures Recommended Disclosures • Strategy: The actual and potential impacts of climate- related risks and opportunities on the organisation’s a) Describe the board’s oversight a) Describe the climate-related a) Describe the organization’s a) Disclose the metrics used by of climate-related risks and risks and opportunities the processes for identifying and the organization to assess businesses, strategy, and financial planning. opportunities. organization has identified over assessing climate-related risks. climate-related risks and the short, medium, and long opportunities in line with its • Risk Management: The processes used by the term. strategy and risk management organisation to identify, assess, and manage climate- process. related risks. b) Describe management’s role in b) Describe the impact of climate- b) Describe the organization’s b) Disclose Scope 1, Scope 2, and, • Metrics and Targets: The metrics and targets used to assessing and managing related risks and opportunities processes for managing if appropriate, Scope 3 assess and manage relevant climate-related risks and climate-related risks and on the organization’s climate-related risks. greenhouse gas (GHG) opportunities. businesses, strategy, and emissions, and the related opportunities. financial planning. risks. The TCFD also put together sector-specific reporting c) Describe the resilience of the c) Describe how processes for c) Describe the targets used by guidance for the financial industry (insurers, banks, asset organization’s strategy, taking identifying, assessing, and the organization to manage managers and asset owners) and other non-financial into consideration different managing climate-related risks climate-related risks and sectors including energy; transportation; materials and climate-related scenarios, are integrated into the opportunities and performance including a 2°C or lower organization’s overall risk against targets. buildings; and agricultural, food and forest products. scenario. management.

Section 1 Investor expectations and company views

Governance and management One approach is to disclose what information the board sees (Royal Dutch Shell plc page 38), the governance arrangements in place (Unilever PLC page 39), who Investor participants are seeking a better understanding of: has responsibility, and a consideration of the necessary competence (National Grid plc page 40) • how boards consider and assess climate-related issues Setting the strategy Overview The areas in which climate-related issues might be relevant are extremely Throughout this project, both companies and investors reinforced the importance of interconnected, and therefore feedback between each of the areas, and incorporation the board’s role. Investors stressed the importance of understanding the way in which into strategic planning, is essential. Board involvement in setting the company’s a board considers and assesses climate-related issues. This allows them to get comfort strategy is considered key, as climate-related issues pose a challenge to strategy now over procedures and the board’s consideration of how the company’s business model and in the future. and strategy are affected. In the reporting, investors want more information about how boards consider and assess a range of sustainability-related topics, including climate- A changing climate does not only pose risks, but also opportunities. The most relevant related issues and the workforce (which is subject to a separate Lab report) relevant to issues will differ by company, but the board is in a position to take a longer-term the company’s business model and strategy. view and bring the challenges and opportunities together. In this context, the board’s role in assessing and considering materiality is key. In measuring these aspects, Investor view where possible, the use of standardised metrics, or standardised or industry-based methodologies are welcomed by investors. The role of the board The importance of the board should not, however, downplay the importance of Investors seek more information on how boards consider and assess climate-related management. The achievement of targets are key to achievement of a wider strategy, issues. Examples of such disclosure could include who has responsibility for climate- and the TCFD also expects disclosures around the involvement and interaction of related matters and the frequency with which the item is discussed. However, process- management in assessing and managing climate-related risks and opportunities. specific disclosures should not substitute for insights into the quality of the discussion and the way in which relevant information has been incorporated into strategic planning Company view and key decision-making. The role of the board This desire for an understanding of the board’s involvement is not necessarily limited to climate change; investors are looking for more information on how boards consider and Many companies agreed with investors that the role of the board should be central to assess a range of sustainability-related issues. The views on governance that are set out considerations of climate-related issues and the connected challenges. in this section, the questions investors are asking and disclosures they are looking for, as Some companies reported that they had to work quite actively to link activities at an outlined on page 12, could equally apply to other aspects of board consideration. operational level with the board’s oversight. However, many felt that the focus of the TCFD on governance had allowed for more internal momentum regarding the topic. “It’s not necessarily all about the numbers – I want to know they’re thinking about Some also reported that it had helped with wider integration of climate-related issues the issue of climate change, as it is what I would be worried about if I was running into strategic considerations. the business” – Investor Disclosures regarding the board’s consideration of these issues, including relevant risks, are often qualitative. The company is in the best position to provide its own view of the challenges it faces, but also to support this with the data that is most relevant to the company, and that is being monitored and managed by the board.

In order to help investors understand how boards consider and assess climate-related TCFD expects companies to: issues, companies should ask themselves… Disclose the organisation’s governance around climate- related risks and opportunities • What arrangements does the board have in place for assessing and considering climate-related issues? What is the board’s view of the climate change challenge, and what assumptions is it making? + • Describe the board’s oversight of climate-related risks and opportunities • Who has responsibility for climate-related issues? How are the board and/or committees involved and how often are climate-related issues considered?+ • Describe management’s role in assessing and managing climate-related risks and opportunities • What insight does the information give the company and how is it being integrated into strategic planning?+ • What information helps the board understand the company’s risk profile? • What information and metrics do the board monitor in relation to climate-related issues? How does the board, establish, monitor and oversee, including modifying, climate-related goals and targets? + “ Every organisation has some kind of risk, we need them to • Is the board preparing for different outcomes where there is uncertainty? sit down and look at what’s relevant to them” – Investor • Ho w does the board get comfort over the metrics being used to monitor and manage the relevant issues? “ It’s fundamentally whether or not the company has • What arrangements does the Executive Committee, or other divisional levels, have in place for assessing and envisioned a 20 year world that matches our view, whether considering climate-related issues, and who has responsibility for them? + their choices and strategy and competitive advantage are • Does the board consider the climate-related reporting to be fair, balanced and understandable? consistent with that 20 year view and how they will use • Wha t competence and expertise does the board feel it needs, or needs access to, in order to consider and address their strengths to get there” – Investor the challenges climate-related issues pose? • Has the board reviewed its public policy approach to climate-related issues for consistency? • Is the organisation planning to report against the TCFD? If so, what can be shared about the progress made and what are the plans for disclosure?

+ notes where the questions align with expectations for reporting in the TCFD’s ‘Guidance for all sectors’

“ On scenarios, what are the drivers that change what is going on in the scenario – An approach is to outline strategic plans for reaching net zero by 2050 (General I really want to understand where it is impacting the business model. It’s not about a Mills Inc page 48), including reference to the IPCC recommended 1.5 degree pathway, and an indication of strategic decisions being made in light of this number, not about the output, the journey is as important as the destination” (Ørsted A/S page 49) – Investor “ Reporting has been an iterative process. It doesn’t need to be perfect” – Company

Data Investors draw on a number of sources when considering climate-related issues, Whilst investors want to understand board oversight and functions, they are also including using proxy information where specific disclosure is not provided. However, increasingly calling for more data on an asset-by-asset basis. Companies will be affected disclosure from the company allows investors to understand its position and make their differently by climate-related issues, so information on the key challenges the company own assessment of whether they agree. faces, whether in relation to supply chains, manufacturing locations or other issues, will differ. Investors want to understand where and how the business is operating and what Investors expect strategically important information to be included within an annual physical and regulatory change may be most relevant in those jurisdictions. report alongside financial statements implications, where material. This aligns with the TCFD, which expects climate-related financial disclosures to be made in mainstream filings. This approach allows for more thorough stewardship and investment decision- making. Additional reporting may be provided elsewhere, for example in a sustainability One approach is to explain the challenges a company faces at each asset report, to supplement this. location (Fresnillo plc page 50) “ We need to consider it asset-by-asset. We are currently in part assuming the whole company is one asset, even though we know it’s wrong. One high and one low risk Investors acknowledge the challenges of gathering timely, robust and reliable data, as does not level out to a medium risk” – Investor they are facing similar challenges when developing their own modelling and disclosure. Qualitative disclosures are useful, particularly in relation to governance and a view of In understanding challenges, and required changes, to the business model, investors the future, but in the absence of data, such disclosures may be less decision-useful. also welcome the work of a number of organisations, such as theCDP , Climate One example of a data point that is used by a number of investors to understand the Disclosure Standards Board and Sustainability Accounting Standards Board, which company and its planning is whether or not a projected carbon price is being used for provide guidance on reporting, and are increasingly displaying how their frameworks internal planning purposes, including project planning and assessment. The strategic align with the TCFD. These frameworks and initiatives are covered in more detail planning purpose should align with the company’s wider purpose as expected by the in Appendix D. For investors it’s not about companies providing TCFD reporting UK Corporate Governance Code, which allows for coherent consideration of this issue exclusively, but instead the integration of information from other frameworks where across the company. this assists in reporting, which makes the guidance on alignment to TCFD welcome.

“ It’s all about the context, so put together a three year reporting plan and update every year regarding the context. It’s not just about the company’s plans, it’s also One approach is to disclose an internal carbon price used for strategic about resilience to how wider society is responding” – Company planning purposes (Oil Search Ltd page 51) “ We understand the importance, but find it hard to reconcile to the here and now” – Company

Financial statement impact In its July 2019 statement, the FRC stated that it would monitor how AASB/AAASB Guidance on financial statement impact of climate-related and other If material to the business, investors companies and their auditors fulfil also expect companies to consider their responsibilities, including in emerging risks and report on the impact on the relation to the disclosures in the In April 2019, the Australian Accounting Standards Board and the Australian Auditing and financial statements, particularly on financial statements. It is clear that Assurance Standards Board issued joint guidance on assessing when climate-related and other those aspects of financial statement investor expectations in this area, on emerging risks are material in relation to the assumptions made in preparing the financial reporting that involve estimates of both companies and auditors, are statements, and therefore require separate disclosure regardless of their numerical impact. the future. These might include, for increasing. example: Climate-related and other emerging risks disclosures: assessing financial statement materiality Better reporting includes outlining using AASB/IASB Practice Statement 2 briefly outlines how climate-related risks may affect • p ricing and demand assumptions financially relevant information, the financial statements and which accounting standards, such as impairment of assets, used in impairment testing but also explaining the impacts, the may be relevant. The guidance notes that while these issues are most commonly discussed models that involve carbon balance sheet effects and where outside the financial statements, “qualitative external factors such as the industry in which products; there are assets and liabilities that, the entity operates, and Figure 1 Considerations in Assessing Materiality Figure 2: Considerations in assessing materiality • depreciation rates of assets looking to the future, are already investor expectations may being impacted now. As outlined make such risks ‘material’ whose useful economic life may Investor Expectations be affected by climate-related in the FRC's recent publication and warrant disclosures Could investors reasonably expect that climate-related risks or other issues, and any decommissioning 'Thematic Review: Impairment of when preparing financial emerging risks have a significant impact on the entity and would that risk qualitatively influence investors’ decisions, regardless of the quantitative obligations that may follow; non-financial assets', companies statements, regardless of impact on the financial statements? for whom climate change and their numerical impact”. • r ecognition of an onerous environmental impact are significant The guidance includes contract provision due to loss of will explain how such factors, an overview flow chart YES NO revenues due to climate risk; and specific to the company’s industry of this process providing and value chain, have been taken • other information, not presented more detailed guidance into account in assessing medium Entity Assessment Entity Assessment elsewhere in the financial on specific areas of the Have these risks affected any Are climate-related risks or other and long term growth potential, statements, that would influence financial statements that of the amounts recognised emerging risks likely to have a costs and licence to operate. or disclosed in the financial material impact in the entity’s investors’ decisions. may be affected by climate statements? specific circumstances? Some investors particularly change. emphasise the importance of “ Is climate change a material risk? Figure 2: Climate-related YES NO YES NO companies considering the financial You can only tell that once you’ve and other emerging risks statement impacts of climate looked at the materiality. Even disclosures: assessing change as this information is subject low emitters may have exposure financial statement Consider the risks when determining to audit. It is also fundamental Determine Explain No to vulnerable regions, so I expect materiality using AASB/IASB amounts relevant assumptions disclosures information that they need to value recognised and Practice Statement 2 disclosures made necessary companies and make decisions on companies to be thinking about it make relevant capital allocation. and at least doing a process disclosures of identification” – Investor

2 CLIMATE-RELATED AND OTHER EMERGING RISKS DISCLOSURES | 5 Climate-related corporate reporting 16

Company view Horizons For companies, reporting on climate-related issues can be challenging as it requires a “ It’s about having a view of the future, then about considering the climate impacts view of an uncertain future, including the many different pathways that may be taken on that view – ie the climate delta. Probably both are wrong, but it’s insightful even where a target state is clear. With the level of assurance and governance over the annual report, it can make the inherent uncertainty difficult to report on. internally and then externally” – Company Companies also do not always know over which horizons they should be considering Changes to the business model the issue. Some reported that they use their business planning cycle as a first step, Some companies are disclosing opportunities from climate-related issues, but some but many are increasingly looking further, most often to 2030. A few are also looking are also sensitive about disclosing information that might give away their competitive beyond that, but recognise that this brings with it more uncertainty over the long advantage. Scenario analysis can help, as it provides an indication of possible future term outlook, particularly in relation to the metrics used. Some of this uncertainty is impacts without committing a company to a long term direction. In this regard it is highlighted in reporting, and it is important for companies to be clear on the horizon helpful for a company to identify key decisions points for future strategic direction. that they are assessing climate risk. Using the UK government’s target of net zero emissions by 2050 can be helpful. However, the most important part of the challenge is “ This topic has integrated company planning into more of a coordinated strategy reporting on how the insights gained from this horizon are changing, and will change, assessment, offering additional value” – Company behaviour and plans in the future. Internal functions Some companies are trying to consider not only short term risk, but also wider An approach is to discuss the horizons over which different issues have been business resilience. This involves a fulsome assessment of the future and the considered, and what those timeframes are (Land Securities Group PLC, Aviva company’s key drivers in different contexts, including different climate scenarios. Such plc, Bloomberg L.P pages 52, 58-59, 75-77) an analysis requires a great deal of coordination across many areas, including strategy, finance, risk, reporting, company secretarial, sustainability, investor relations, plus the management and board. Coordinating these areas, and working across functions, is an important step in assessing the impacts of climate-related issues across the business. Not surprisingly, this level of coordination can be time-consuming and difficult to put in place. Companies taking part in this project have addressed this challenge in a number of ways. The Lab has developed some tips to help companies based on what the Lab has heard from companies involved in the project. These can be found on page 6.

Business model and strategy

In order to help investors understand how the business model may be affected by climate-related issues, TCFD expects whether it remains sustainable, and how the company may respond to the challenge posed by climate change, including what changes the company might need to make to strategy, companies should ask companies to: themselves… Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy, • What does the company look like in the future and how will it continue to generate value? What strategy does the company have for and financial planning where such responding to the challenges? information is material • How was the decision about the materiality of climate-related issues made? + • Describe the climate-related risks and • What opportunities and risks concerning climate-related issues are most relevant to the company’s business model and strategy? opportunities the organisation has Which, if any, of these are financially material? What process has been followed in order to assess the impact of climate-related identified over the short, medium and issues?+ long term • Where do the biggest risks and opportunities sit? + • Describe the impact of climate- • Has the company considered the impact of low-carbon transition as well as physical risk? related risks and opportunities on the organisation’s businesses, strategy • What are the relevant short, medium and long-term horizons? How do these different horizons affect key divisions, markets, and financial planning products and/or revenue/profit drivers? + • Describe the resilience of the • How resilient is the business model to climate change? How does the company respond to a 1.5 degree, 2 degree or more world? + organisation’s strategy, taking into • What strategy has been put in place to reach that aim, and what operational or capital expenditures are needed to address consideration different climate- any necessary business model changes? How are long-term projects structured to ensure flexibility, including options for de- related scenarios, including a 2 degree emphasising and emphasising if circumstances should dictate?+ or lower scenario • What are the possible effects on the company’s revenues, expenditures, assets, liabilities, products, customers, suppliers etc of different climate scenarios? • How does the information gathered factor into strategic planning? What triggers would require a change of direction? “ We really need to be looking out 15 years” • Are there opportunities better to explain exposure to particular product lines or 'green' revenues? – Company • How are the risks and opportunities reflected in the financial statements, for example the effect of assumptions used in impairment testing, depreciation rates, decommissioning, restoration and other similar liabilities and financial risk disclosures?

+ notes where the questions align with expectations for reporting in the TCFD’s ‘Guidance for all sectors’

Risk Management Disclosure around the risk management process is necessarily qualitative. The question posed is, are systems or processes in place to protect the company and its assets? Much of the expectation around risk management assumes that companies will be Investor participants are seeking a better understanding of: including climate risk in current risk management considerations, rather than as a • the risks and opportunities presented by climate change including the separate process or consideration. prioritisation, likelihood and impact, what scenarios might affect the company’s sustainability and viability, and how the company is responding Materiality and principal risks In general, investors believe that more companies should be assessing climate change as a risk, or at least as an uncertainty, in their reporting of principal risks and uncertainties. Overview However, investors are also interested in which risks companies have themselves The insights from the Lab’s report and implementation study on risk and viability identified. There is an expectation that how a company assessed the materiality of reporting continue to hold true. Investors seek company-specific disclosures that climate risk should be reported even where it has not been considered a principal risk. If provide information about prioritisation of risk and their likelihood and impact. reported as a risk it should explain the impacts that raise that specific concern. For companies, challenges could be numerous, including disrupted supply chains, regulatory changes, land use amendments, water scarcity, or weather-specific changes at main production sites, amongst a number of other challenges. The insight about An approach is to outline the risk management process in place what each may mean for the business is important, as this helps connect to strategic (Swiss Reinsurance Company Limited page 54), or provide information on the planning. This implies a level of asset-specific data. Investors would like to see more oversight of the Audit Committee (National Grid plc page 55) reference to climate-related issues across the risk and viability sections. A key aspect of this is gaining an understanding of the related governance and risk management process regardless of the assessment of materiality. Granularity of information Whilst under the TCFD framework, scenario analysis sits more alongside strategy, we Risks depend on the business, its business model, the location and vulnerability of have instead included it in the risk management section. Many of the insights about assets and liabilities and the magnitude and rate of temperature increase. Investors are what investors seek relate to the conclusions of the Lab’s risk and viability report, which not only interested in the risks posed by climate change at a high level, they are also can therefore be helpful in identifying areas to focus on. Obviously, results of scenario interested in asset-level data, for example where sites may be located, and what this analysis need to be incorporated into strategic planning, and potentially impairment means for specific transitional or physical risks faced. testing in the financial statements and this illustrates one of the ways in which TCFD expects an interconnected picture to form. An approach is to outline the risks in relation to key specific assets (Diageo plc page 56) or benchmarked results and changes made (Johnson Matthey plc page Investor view 57) Process and oversight Investors seek to understand the process that has been undertaken to identify risks, which risks have been identified, how important the risks are and what the company is “The most difficult thing is the scenario – and the most interesting thing is obviously going to do about them. They are using the risk disclosures to understand a company’s the scenario” – Company resilience to risk, and how well-positioned the company is to respond. “I want a company to do their own [scenario analysis], but if the analyst can’t “ How do we get a meaningful outcome? A number of different scenarios and understand what they have done there is no point” – Investor impacts need to be considered” – Investor

Scenario analysis Many also wanted to see modelling against a higher, ‘stressful’ scenario, such as a 3 Given the uncertainty inherent to climate change, scenario analysis is considered or 4 degree world, to understand company resilience. Companies are expected to use important and is one of the key elements of the TCFD. Whilst implementation is more than one scenario and/or pathway, and ensure that appropriate and credible developing, investors are supportive of companies evolving their approach. Investors assumptions around physical and transition risks are reported. acknowledge that it can be complicated to connect climate scenarios to financial and These scenarios should then tie not only into wider risk management considerations, business operations, and they face similar challenges in their own modelling. but also strategic planning and viability assessments. Investors seek information on which scenarios have been assessed, and what assumptions have been made. In addition, understanding the discussion around An approach is to outline asset-based outcomes referring to specific scenarios, how these assumptions have been arrived at is helpful. These are key elements in including NPV-related results under which the scenarios may make certain understanding the credibility of the activity and as such, the question asked in the Lab’s investments less attractive, and modelling to a 1.5 degree scenario (Oil Search risk report applies – are the stress and scenario analyses disclosed in sufficient detail Ltd pages 60 and 61), or a description of the scenarios and impacts on key to provide investors with an understanding of the nature of those scenarios, and the areas (in this circumstance related to commodity impacts) - (Rio Tinto plc extent and likelihood of mitigating activities? pages 62 and 63)

Investors are interested in how a company will be affected under different scenarios, “It’s not about one scenario, but which range of scenarios and what did they tell you, and what strategy they will then put in place to address the related challenges. Investors appreciate specific insight into the scenarios and key assumptions, although how aggressive was it – it’s all about assumptions and process – and what were the they don’t expect ‘one answer’. Although they would like an indication of possible indicative effects?” – Investor effects on financial results under different scenarios, investors are more interested in the underlying information that allows them to make their own assessment. Viability statements Scenario analysis is about an openness to a range of possibilities and uncertainties and Most investors expect companies to assess their prospects over a longer time frame the development of an understanding of the important inflection points, signals and than is currently the practice, with many then expecting climate-related issues to be a how decision-making may need to change in the future. Therefore, one of the crucial factor included in viability statements. questions is how the results are specifically used in planning. The Lab’s report on risk and viability suggested a two-stage process for a consideration of viability. This involves an assessment of prospects over a longer time horizon, taking into account current position, a robust assessment of principal risks and the business An approach is to refer to signposts being monitored, with indicators and model. It was clear during this project that investors consider this assessment should reference to future strategic decisions (Bloomberg L.P. pages 58 and 59) be carried out over longer than a three year timeframe. For many companies this assessment should encompass risks and opportunities arising from climate change. The second stage, which may be over a shorter period whilst taking into account Many investors want modelling against a 1.5 degree scenario, as envisaged by the Paris insights from the first step, is an assessment of viability considering stress and Agreement. The TCFD framework recommends a ‘2 degree, or lower’ scenario, but sensitivity analysis, linkage to principal risks, qualifications and assumptions and the investor expectation is also beginning to coalesce around an expectation of modelling level of reasonable expectation. towards a 1.5 degree world.

“ It’s about asking the people involved in the business to think about, and help ensure, “Scenario analysis has enabled us to say we know to the best of our capability what the company is around in 10 years. About critical elements of the business’ survival the physical risks are posed by climate change” – Company and encouraging and reporting on those” – Company Scenario analysis There are real challenges in translating climate change scenarios into business and One approach is to refer to climate-related impacts in the viability statement operational impacts. This has been a complex process for a number of companies. Such disclosure (Royal Dutch Shell plc page 64) challenges include, for example, translating weather and other physical impact scenarios into the financial modelling and forward-looking planning process. However, where companies have done this they report having a much greater insight into the resilience Company view of their business model, and where changes may need to be made to the business Relevance model or strategy. For many companies, climate change is not currently considered a principal, or even Still, scenario analysis remains a complicated, and often expensive, exercise. As most material, risk. For some this is reflective of horizons, whereas others do not see it companies are only at the beginning of this process reporting is expected to evolve over time. having a material impact. Overall, it appears that some companies take a different view to investors on the issue of materiality. Concerns remain that scenario analysis, and related financial disclosures, constitute a ‘forecast’ and are therefore not allowed within the regulatory framework. However, Risk management processes as companies have adopted scenario analysis and understand the use of a range of scenarios this concern appears to be decreasing. Companies reinforced the importance of the process of considering climate-related issues as a risk, and ensuring that multiple time horizons are considered. Some Most companies using scenario analysis refer to the International Energy Agency reported that time horizons can be difficult, as investors are often requesting disclosure (IEA) scenarios or the Intergovernmental Panel on Climate Change (IPCC). The IEA over a time horizon which extends beyond a company’s normal planning process. Some scenarios set out a long-term view of energy system trends and technologies. The IPCC companies do not see climate-related issues affecting them in the shorter-term, and scenarios detail a number of different scenarios and, in the2018 Special Report on are concerned about setting a precedent on longer horizons. Companies can, at the Global Warming of 1.5 degrees Celsius, the IPCC describes four pathways as illustrative very least, report over which horizons risks have been considered. Another approach examples of the different ways in which a below 2 degree outcome may be reached. A may be more clearly to delineate between principal risks and uncertainties, rather than few companies are also using the Greenpeace Advanced Energy [R]evolution scenario amalgamating the two. (1.5 degree). Given different transition pathways, companies acknowledge that it is important to explain the assumptions used in the scenarios. The TCFD also provides a Some companies are just starting to consider climate-related issues, and appropriate consideration can require a significant investment of time from people across an technical supplement on the use of scenario analysis. organisation. However, investors, and the TCFD itself, reinforce that much of the consideration of this challenge should build on existing considerations and processes. Many companies have also noted that they have gathered and utilised external One approach is to refer to assumptions made and the impact of different expertise in order to assist their consideration of the relevant issues. We also include scenarios (Unilever PLC page 39) on page 6 some tips for how companies may be able to approach a consideration of climate-related issues. Looking at the disclosure in this area, it is clear that not all companies are currently carrying out scenario analysis. There is much for both companies and investors to One approach is to refer to what type of expertise has been gathered when learn in this area. However, the strong investor view is that just because results cannot specific external expertise has been sought (Royal Dutch Shell plc page 38) be quantified with a high degree of certainty, does not mean that disclosure is not warranted and helpful.

Risk management

In order to help investors understand the risks and opportunities presented by climate change including TCFD expects the prioritisation, likelihood and impact, what scenarios might affect the company’s sustainability and viability, and how the company is responding, companies should ask themselves… companies to: Disclose how the organisation identifies, • What oversight does the board have of climate-related opportunities and risks? + assesses, and manages climate-related risks • What systems and processes are in place for identifying, assessing and managing climate-related risks? To what extent can current processes be developed to assist? + • Describe the organisation’s processes for identifying and assessing climate- • How will transitional and physical risks affect the company? + related risks • How is a consideration of climate-related issues integrated into the risk management process and connected to other related risks? • Describe the organisation’s processes • Over what horizons have the risks been considered and risk assessments carried out? for managing climate-related risks • Ho w are the risks from climate change being monitored, including decisions around mitigation, transfer, acceptance and control? + • Describe how processes for • How is the assessment of the company’s viability over the longer-term taking into account climate-related issues? identifying, assessing, and managing • Is the company’s business and business model viable? What signals or leading indicators might encourage a reconsideration of this climate-related risks are integrated assessment and the related strategy, or an understanding of whether the risk mitigation activities are being achieved? into the organisation’s overall risk management • If the company is undertaking scenario analysis, how did the company decide on which scenarios to use and what assumptions have been made? How do these relate to the outcomes advocated in the Paris Agreement? • Are the scenarios sufficiently diverse and challenging? • How did the company translate scenarios to operational/financial models? “Environmental risk… accounted for three of the top five risks by likelihood and four by • Ho w is the scenario analysis used in strategic planning? impact. Extreme weather was the risk of greatest concern, but our survey respondents are increasingly worried about environmental + notes where the questions align with expectations for reporting in the TCFD’s ‘Guidance for all sectors’ policy failure: having fallen in the rankings after Paris, ‘failure of climate-change mitigation and adaptation’ jumped back to number two in terms of impact this year. The results of climate inaction are becoming increasingly clear” – World Economic Forum, The Global Risks Report 2019 – 14th edition, Insights Report

An approach is to refer to competitive advantage with reference to the business model (Diageo plc page 66), or produce metrics seen as key to this with reference to climate change, such as ‘Climate-Value-at-risk’ (AXA page 67) or carbon footprints and how these are assessed and used (Aviva plc page 68)

“In terms of comfort about the reliability of information, views will evolve. We An approach is to present performance in a user-friendly manner. Such have a certain level now, but as reporting evolves expectation of comfort will attributes include clarity of information, presentation of performance across evolve with it” – Investor time, descriptions of the metrics being measured and target-setting (UBS Group AG page 70, DS Smith plc page 71 and National Grid plc page 72) Many disclosures are also, by their nature, based on best estimates, in particular, Scope 3 emissions. The GHG Protocol Corporate Standard considers Scope 3 emissions to be all indirect emissions (not previously covered) that occur in the value chain of the Company view reporting company, including both upstream and downstream emissions. Aligning metrics to strategy can be challenging as the uncertainties inherent in the Investors are positive about more companies disclosing data on their Scope 3 required changes mean that it is often difficult to measure how climate-related issues emissions, but some noted that, where they had assessed this information across a impact a business. Other companies are considering this topic as a core challenge to market or geography, the current disclosures did not make sense in the aggregate. their business model and have done in-depth assessments of how climate change Reporting this metric is challenging, but both asset managers and asset owners are may affect it. increasingly being asked to disclose portfolio carbon footprints and therefore need the Where internal systems are already in place, companies are generally more information to enable them to do so. comfortable with providing reliable information. However, where new information is needed this is more challenging and involves more estimation based on evidence and samples. Scope 3 emissions data was one example of this, and companies expect One approach is to refer to scope 1, 2 and 3 emissions and related intensity disclosure to evolve as they address the challenge. (Fresnillo plc page 69)

An approach is to present different scopes of greenhouse gas emissions, including Scope 3, across time, with methodologies noted (Go-Ahead Group plc Ambitions and targets are important in placing the metrics incontext , especially page 73), or to explain changes in calculations, changes from the previous year in relation to a world affected by a changed climate, and what level of emissions and scope and boundary (Associated British Foods plc page 74) reduction a company is aiming to achieve. Some investors feel that a better understanding of whether or not the information Many are using specialists to help them. When using these sources they are usually is calculated consistently or on a comparable basis would go some way towards more comfortable with the reliability of the information and many view this as a way addressing concerns around reliability and transparency. to overcome questions of reliability. Others have had external assurance or validation. “We end up using none of the metrics because they are not comparable” – Investor Companies also discussed comparability and consistency. Some said that comparability was difficult beyond protocols already in the market. They felt that Investors acknowledged that disclosure is evolving, and that they want to understand their consideration was often less mature on this topic than others, so in many areas the effects on the specific business model and strategy, including on an asset-by-asset development was just beginning. basis. However, investors also felt that more comparability of methodology could be achieved. Investors are comparing what is relevant to one company with others in the “The uncertainty makes it more important that the information be in the context of sector, and the impact of climate across more than just that sector and geography. As the business” – Investor such, where industry-specific approaches, or standard methodologies are available, these are welcomed.

Metrics and targets

In order to help investors understand how climate-related issues, and their impact, are measured, TCFD expects including metrics, data and financially-relevant information, companies should ask themselves… companies to: • What information is most relevant to monitoring and managing the impacts of climate-related issues? How were these identified and Disclose the metrics and targets used how do they link to the strategy and business model? + to assess and manage relevant climate- • Has a strategy been defined, with related metrics to measure progress, setting the company on a course to net-zero carbon by 2050, related risks and opportunities where such information is material and for interim stages in between now and then? What metrics are monitored in relation to mitigation and adaptation? If metrics are not related, what metrics are being used, and what timelines has it set? • Disclose the metrics used by the • What signals or specific climate scenarios are monitored? organisation to assess climate-related risks and opportunities in line with its • Has the company considered whether issues regarding water, energy, land use and waste management may be material, and if so, strategy and risk management process how these should be measured? + • Disclose Scope 1, Scope 2 and, if • What do the metrics being monitored and managed indicate about the future direction of the company? How is this information appropriate, Scope 3 greenhouse gas used? How are they being integrated into day-to-day business management and reporting? (GHG) emissions, and the related risks • What is the scope and boundary of the information presented? Is this the same across all information presented? • Describe the targets used by the • To what level of oversight or assurance have the metrics been subjected? organisation to manage climate- • What external data, or external expertise, has the company relied upon? related risks and opportunities and performance against targets • Are the metrics disclosed calculated consistently? Is trend data provided? • Which methodology has been used for constructing the metrics? Is this comparable to other companies in the sector? • Have estimates been used in compiling measures or targets? Can you describe the calculation of these? + • What are the company’s Scope 1, Scope 2 and, where relevant, Scope 3 greenhouse gas emissions? Is the GHG Protocol and/or another industry-specific methodology used for this calculation? + • Is an internal carbon price used? If so, what is it and for which purposes is it used? + • Wha t is the company trying to achieve in relation to climate resilience and what targets has it set? Have the targets been achieved, and what comes next? + • How are metrics being integrated into the remuneration policies? Is this the most effective linkage possible? +

+ notes where the questions align with expectations for reporting in the TCFD’s ‘Guidance for all sectors’

Bringing disclosures together On page 6 we include tips from companies that are approaching climate-related issues Recent Lab projects on business models, risk and viability and performance metrics, in a more coordinated way across their reporting. These tips aim to help companies have all raised the importance of linkage of company information. The conclusions from attempting to make their reporting more effective, and outline some internal functions these previous reports have held true in the context of the reporting of climate-related that may assist in ensuring the linkage investors see as so important. issues.

Particular insights are in each of the sections of the report, but companies should A series of extracts (Land Securities Group PLC pages 75 - 77 and SSE plc pages generally consider the picture their reporting casts, and how they can fit elements of 42 - 45) show linkage of information across the report, and time, including climate-related reporting into their suite of disclosures in order most effectively to between metrics and qualitative disclosures, thereby putting the disclosures in assist investors to understand their company. context

The suite of disclosures that allow investors to understand a company:

Business model Purpose Explains how the company generate benefits Explains how the company generates for its members through economic success and preserves value over the The disclosure of longer-term whilst contributing to inclusive and a company’s purpose, sustainable growth strategy, objectives and Strategy and objectives business model should together Principal risks and viability explain what the company does and Provides insight into the company’s Explains those material to the future development, performance, how and why it does it. company, or where the impact of its position and future prospects A description of a company’s activity poses a significant risk values, desired behaviours and Business environment culture will help to explain and Performance metrics put its purpose in context. Are used in assessing progress against Provides information about the main trends and factors, including both objectives or strategy, monitoring principal risks, or generally the development, financial and wider matters performance or position of the company

Section 2 Appendix A – questions and recommended disclosures

Governance and management

In order to help investors understand how boards consider and assess climate-related issues, companies TCFD expects should ask themselves… companies to:

• Wha t arrangements does the board have in place for assessing and considering climate-related issues? What is the board’s view of the Disclose the organisation’s governance climate change challenge, and what assumptions is it making? + around climate-related risks and opportunities • Who has responsibility for climate-related issues? How are the board and/or committees involved and how often are climate-related issues considered?+ • Describe the board’s oversight of climate-related risks and opportunities • What insight does the information give the company and how is it being integrated into strategic planning? + • Describe management’s role in assessing • What information helps the board understand the company’s risk profile? and managing climate-related risks and • What information and metrics do the board monitor in relation to climate-related issues? How does the board, establish, monitor and opportunities oversee, including modifying, climate-related goals and targets? + • Is the board preparing for different outcomes where there is uncertainty? • Ho w does the board get comfort over the metrics being used to monitor and manage the relevant issues? • What arrangements does the Executive Committee, or other divisional levels, have in place for assessing and considering climate- related issues, and who has responsibility for them? + • Does the board consider the climate-related reporting to be fair, balanced and understandable? • Wha t competence and expertise does the board feel it needs, or needs access to, in order to consider and address the challenges climate-related issues pose? • Has the board reviewed its public policy approach to climate-related issues for consistency? • Is the organisation planning to report against the TCFD? If so, what can be shared about the progress made and what are the plans for disclosure? and strategy

Examples

An approach is to disclose what information the board sees, the governance arrangements Royal Dutch Shell plc, Unilever p38,39,40 in place, who has responsibility, and a consideration of the necessary competence. PLC, National Grid plc

+ notes where the questions align with expectations for reporting in the TCFD’s ‘Guidance for all sectors’ Business model

Business model and strategy Examples

One approach is to disclose the resilience of the business model SSE plc and Stora p42-45, In order to help investors understand how the business model and opportunities, including a quantification of these risks and Enso Oyj 46 opportunities or where specific aspects of the business model may may be affected by climate-related issues, whether it remains be affected and the capacity to respond sustainable, and how the company may respond to the challenge One approach is to disclose the opportunities a changing climate Halma plc p47 posed by climate change, including what changes the company poses to the business might need to make to strategy, companies should ask themselves…

• What does the company look like in the future and how will it continue to generate An approach is to outline strategic plans for reaching net zero by General Mills Inc and p48, 49 value? What strategy does the company have for responding to the challenges? 2050, including reference to the IPCC recommended 1.5 degree Ørsted A/S pathway, and an indication of strategic decisions being made in • How was the decision about the materiality of climate-related issues made? + light of this • What opportunities and risks concerning climate-related issues are most relevant to the One approach is to explain the challenges a company faces at each Fresnillo plc p50 company’s business model and strategy? Which, if any, of these are financially material? asset location What process has been followed in order to assess the impact of climate-related issues?+ • Where do the biggest risks and opportunities sit? + One approach is to disclose an internal carbon price used for Oil Search Ltd p51 • Has the company considered the impact of low-carbon transition as well as physical strategic planning purposes risk? • What are the relevant short, medium and long-term horizons? How do these different horizons affect key divisions, markets, products and/or revenue/profit drivers? + An approach is to discuss the horizons over which different issues Aviva plc, Land p52, • How resilient is the business model to climate change? How does the company respond have been considered, and what those timeframes are Securities Group PLC, 58-59 Bloomberg L.P. and to a 1.5 degree, 2 degree or more world? + 75-77 • What strategy has been put in place to reach that aim, and what operational or capital expenditures are needed to address any necessary business model changes? How are long-term projects structured to ensure flexibility, including options for de- emphasising and emphasising if circumstances should dictate? + TCFD expects companies to: • What are the possible effects on the company’s revenues, expenditures, assets, Disclose the actual and potential impacts of climate-related risks and opportunities on the liabilities, products, customers, suppliers etc of different climate scenarios? organisation’s businesses, strategy, and financial planning where such information is material • How does the information gathered factor into strategic planning? What triggers • Describe the climate-related risks and opportunities the organisation has identified over the would require a change of direction? short, medium and long term • Are there opportunities better to explain exposure to particular product lines or 'green' • Describe the impact of climate-related risks and opportunities on the organisation’s revenues? businesses, strategy and financial planning • How are the risks and opportunities reflected in the financial statements, for • Describe the resilience of the organisation’s strategy, taking into consideration difference example the effect of assumptions used in impairment testing, depreciation climate-related scenarios, including a 2 degree or lower scenario rates, decommissioning, restoration and other similar liabilities and financial risk disclosures? + notes where the questions align with expectations for reporting in the TCFD’s ‘Guidance for all sectors’

An approach is to outline the risk management process in place, or provide Swiss Reinsurance p54 information on the oversight of the Audit Committee Company Limited and and In order to help investors understand the risks and opportunities National Grid plc 55 presented by climate change including the prioritisation, An approach is to outline the risks in relation to key specific assets or Diageo plc and p56 likelihood and impact, what scenarios might affect the benchmarked results and changes made Johnson Matthey plc and company’s sustainability and viability, and how the company is 57 responding, companies should ask themselves… An approach is to refer to signposts being monitored, with indicators and Bloomberg L.P. p58 reference to future strategic decisions • What oversight does the board have of climate-related opportunities and risks? + • What systems and processes are in place for identifying, assessing and managing An approach is to outline asset-based outcomes referring to specific Oil Search Ltd and Rio p60- climate-related risks? To what extent can current processes be developed to scenarios, including NPV-related results under which the scenarios may Tinto plc 61 and assist? + make certain investments less attractive, and modelling to a 1.5 degree 62-63 scenario, or a description of the scenarios and impacts on key areas (in this • How will transitional and physical risks affect the company? + circumstance related to commodity impacts) • How is a consideration of climate-related issues integrated into the risk management process and connected to other related risks? One approach is to refer to climate-related impacts in the viability Royal Dutch Shell plc p64 statement disclosure • Over what horizons have the risks been considered and risk assessments carried out? • How are the risks from climate change being monitored, including decisions One approach is to refer to what type of expertise has been gathered when Royal Dutch Shell plc p38 specific external expertise has been sought around mitigation, transfer, acceptance and control? + • How is the assessment of the company’s viability over the longer-term taking into account climate-related issues? One approach is to refer to assumptions made and the impact of different Unilever PLC p39 scenarios • Is the company’s business and business model viable? What signals or leading indicators might encourage a reconsideration of this assessment and the related strategy, or an understanding of whether the risk mitigation activities are being achieved? • If the company is undertaking scenario analysis, how did the company decide on TCFD expects companies to: which scenarios to use and what assumptions have been made? How do these Disclose how the organisation identifies, assesses, and manages climate-related risks relate to the outcomes advocated in the Paris Agreement? • Describe the organisation’s processes for identifying and assessing climate-related risks • Are the scenarios sufficiently diverse and challenging? • Describe the organisation’s processes for managing climate-related risks • How did the company translate scenarios to operational/financial models? • Describe how processes for identifying, assessing, and managing climate-related risks are integrated

• How is the scenario analysis used in strategic planning? into the organisation’s overall risk management

+ notes where the questions align with expectations for reporting in the TCFD’s ‘Guidance for all sectors’

Metrics and targets Examples

An approach is to refer to competitive advantage with Diageo plc, AXA p66- reference to the business model, or produce metrics Group and Aviva 68 In order to help investors understand how climate-related issues, and their seen as key to this with reference to climate change, such plc impact, are measured, including metrics, data and financially-relevant as ‘Climate-Value-at-risk’ or carbon footprints and how these are assessed and used information, companies should ask themselves… One approach is to state that remuneration will be linked Royal Dutch p38 • Wha t information is most relevant to monitoring and managing the impacts of climate-related issues? to climate-related metrics Shell plc and and How were these identified and how do they link to the strategy and business model? + SSE plc 45 • Has a strategy been defined, with related metrics to measure progress, setting the company on a One approach is to refer to where a committee has been National Grid p55 course to net-zero carbon by 2050, and for interim stages in between now and then? What metrics are involved in the consideration of climate-related issues or plc monitored in relation to mitigation and adaptation? If metrics are not related, what metrics are being the related disclosure used, and what timelines has it set? • What signals or specific climate scenarios are monitored? One approach is to refer to scope 1, 2 and 3 emissions Fresnillo plc P69 and related intensity • Has the company considered whether issues regarding water, energy, land use and waste management may be material, and if so, how these should be measured? + • What do the metrics being monitored and managed indicate about the future direction of the company? An approach is to present performance in a user-friendly UBS Group AG, p70- manner. Such attributes include clarity of information, DS Smith plc 72 How is this information used? How are they being integrated into day-to-day business management and presentation of performance across time, descriptions of and National reporting? the metrics being measured and target-setting Grid plc • What is the scope and boundary of the information presented? Is this the same across all information An approach is to present different scopes of greenhouse Go-Ahead p73, presented? gas emissions, including Scope 3, across time, with Group plc, 74 methodologies noted, or to explain changes in Associated • To what level of oversight or assurance have the metrics been subjected? calculations, changes from the previous year and scope British Foods plc • What external data, or external expertise, has the company relied upon? and boundary • Are the metrics disclosed calculated consistently? Is trend data provided? • Which methodology has been used for constructing the metrics? Is this comparable to other companies in the sector? TCFD expects companies to: • Have estimates been used in compiling measures or targets? Can you describe the calculation of these? + Disclose the metrics and targets used to assess and manage relevant climate- related risks and opportunities where such information is material • What are the company’s Scope 1, Scope 2 and, where relevant, Scope 3 greenhouse gas emissions? Is the GHG Protocol and/or another industry-specific methodology used for this calculation? + • Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management • Is an internal carbon price used? If so, what is it and for which purposes is it used? + process • What is the company trying to achieve in relation to climate resilience and what targets has it set? Have • Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse gas the targets been achieved, and what comes next? + (GHG) emissions, and the related risks • How are metrics being integrated into the remuneration policies? Is this the most effective linkage • Descr ibe the targets used by the organisation to manage climate-related possible? + risks and opportunities and performance against targets

+ notes where the questions align with expectations for reporting in the TCFD’s ‘Guidance for all sectors’

Section 3 Appendix B – examples of developing practice

Introduction to the examples LIST OF EXAMPLES Area of reporting Company Page Reporting on climate change is a developing area of HSBC Holdings plc 33 practice. Investor and societal expectations, and the Unilever plc 34 regulatory momentum, are encouraging companies DS Smith plc 35 towards more disclosure on the challenges they face. Barclays plc 36 The company questions we have developed provide SSE plc 36 a good start for companies to develop more effective Governance and management Royal Dutch Shell plc 38 reporting. Unilever plc 39 The following pages include examples of developing National Grid plc 40 practice. As this area is evolving so rapidly, it is likely that Business model and strategy SSE plc 42-45 expectations and practice will also continue to develop. Store Enso 46 These examples highlight current practice which Halma plc 47 resonated with investors. Not all of the examples are General Mills Inc 48 relevant for all companies and all circumstances, but Ørsted A/S 49 each provides an example of where the company Fresnillo plc 50 demonstrates how to enhance the value of their Oil Search Ltd 51 disclosures. Aviva plc 52 Highlighting aspects of good reporting by a particular Risk management Swiss Reinsurance Company Limited 54 entity should not be considered an evaluation of that National Grid plc 55 entity’s annual report as a whole. Diageo plc 56 Johnson Matthey plc 57 Investors have contributed to this project at a conceptual level. The examples used are selected by the Lab to Bloomberg L.P. 58 and 59 illustrate the principles that investors have highlighted Oil Search Ltd 60 and 61 and, in many cases, have been tested with investors. Rio Tinto plc 62 and 63 However, they are not necessarily examples chosen by Royal Dutch Shell plc 64 investors and should also not be taken as confirmation Metrics and targets Diageo plc 66 of a holding or acceptance of the company’s reporting AXA Group 67 more generally. Aviva plc 68 The examples were grouped into the four TCFD core Fresnillo plc 69 elements to illustrate how they address some of the UBS Group AG 70 questions investors are asking. DS Smith plc 71 National Grid plc 72 Go-Ahead Group plc 73 Associated British Foods plc 74 Land Securities Group PLC 75-77

What is helpful? HSBC Holdings plc This example defines common language to ensure understanding Sustainable Financing Data Dictionary 2019 between diverse elements of a large organisation. p1, 2

HSBC Bank plc Sustainable Financing Data Dictionary 2019 p1, 2 HSBC’s USD100bn Sustainable Financing and 1. Facilitation

Investment Commitment - Data Dictionary Products Definition Scope We define sustainable finance as any form of financial service that integrates environmental, social Issuances from 1st January 2017 where and governance (ESG) criteria into business or investment decisions. Sustainable finance covers the Participation (bookrunner) in Green, Social HSBC has acted as a bookrunner in the transaction, or HSBC is the issuer. Amount financing and investment activities needed to support the United Nations Sustainable Development Debt Capital and Sustainable (GSS) Bond issuance as included is HSBC’s apportioned value of the Goals (SDGs), and the Paris Agreement. This therefore includes both positive climate change and Markets defined by a green, social or sustainable bond’s proceeds, i.e. number of bookrunners societal impact activities. (DCM): Green, bond framework (ICMA Bond Principles, per transaction. This is the Dealogic Social & Climate Bonds Initiative or HSBC Bond methodology which is recognised as the Sustainability Frameworks), or are classified as a GSS industry standard. Bonds Unlike financial accounting standards, there are currently limited industry standards or globally Bond by Dealogic. This includes HSBC’s The HSBC records are crossed checked / recognised established practices for measuring performance of this type. We expect standards and own bond issuances. validated against Dealogic (an independent definitions to be developed and evolve over time. We also expect innovation to lead to the creation of 3rd party transactions reporting platform). new products and services, these will be added to our data dictionary and disclosed publically via our website as they are identified. In particular this will focus on sustainable ESG activities required in the HSBC issuances from 1st January 2017 real world economy. where HSBC has issued a Green Bond HSBC issued Green bonds that align to the linked to an ESG index. Amount included is above definition, however, they are linked full bond value as HSBC is the sole A key objective for HSBC is to provide financing and to facilitate, in an advisory capacity, the flow of Structured to a well-defined ESG index and not bookrunner, these are private placements capital to enable the transition to a low-carbon economy, whilst helping clients manage transition risk Green Bonds publically traded. Annual progress update and they are not recorded or reported by and enabling activities needed to support the Paris Agreement and the UN SDGs. HSBC has primary reports are available on the Green and Dealogic. The bond are covered by the business governance forums that include; the Group Climate Business Council and the Green Bonds sustainability bonds section of our website. HSBC Green Bond Framework. These are & Loan Committee, the remit of these forums covers both green and societal impacts. For further issued by Global Markets and are reviewed by the HSBC Green Bond Committee information please see the measuring our impact section of our website.

Participation (bookrunner) in debt issuance st HSBC has commitment to provide and facilitate $100bn of sustainable financing and investments by for a company; classified by HSBC as a Issuances from 1 January 2017 where 2025 and have appointed PricewaterhouseCoopers LLP (PwC) to provide limited assurance on the renewables company (companies defined HSBC has acted as a bookrunner in the progress against this commitment as at 31 December 2018. We have therefore developed our data as renewable based on the energy section transaction. Amount included is HSBC’s apportioned value of the bond’s proceeds Debt Capital of Climate Bonds Initiative Taxonomy), or a dictionary to provide additional guidance and transparency on the activities in scope that contribute (aligns to Dealogic methodology: bond Markets (DCM) towards our commitment. company whose core business or the proceeds divided by number of bookrunners). project aligns to one of the ICMA eligible Data is crossed checked and is validated green project categories). These clients are against external 3rd party reports provided by managed within the sector specialist teams Dealogic. We define sustainable finance in three categories: of HSBC’s Global Banking and Markets. 1. Facilitation: advisory services to facilitate the flow of capital and to provide access to capital market; 2. Financing: lending facilities for defined use of proceeds, being the drawn and undrawn Participation (bookrunner) in equity amount (i.e. the limit) provided at the point of execution, including bridging loans and trade issuance for a company; classified by Issuances from 1st January 2017 where Quick read finance loans; andIntroduction Regulatory and market Investor expectations Appendix A – questionsHSBC as Appendixa renewables B – examples company AppendixHSBC C – hasparticipants acted as a bookrunnerAppendix Din – the regulatory 1 2 (companies3 defined as renewable based4 5 3. Investments: investments made into specificallyoverview defined socially responsibleand and company low carbon views and recommended of developing practice and processtransaction. Amount includedand market is HSBC’s initiatives on the energy section of Climate Bonds apportioned value of the equity’s proceeds investments funds managed by HSBC. disclosuresEquity Capital Initiative Taxonomy), or a company whose (aligns to Dealogic methodology: deal Markets (ECM) core business or the project aligns to one proceeds divided by number of bookrunners). of the ICMA eligible green project Data is crossed checked and validated rd This is not a balance sheet value, instead our total commitment measures the cumulative flow of categories). These clients are managed against external 3 party reports provided by capital towards the low carbon economy and positive societal impacts since the beginning of 2017 - within the sector specialist teams of Dealogic. HSBC’s Global Banking and Markets. detailed definitions are available in the table below. Any transactions booked prior to 2017 have not been included in this commitment. Prior periods will not be restated if items are subsequently uncovered. We will remove projects from our prior periods if they lose their externally validated green or social impact status, for example; S&P or Moody’s withdraw their Green Evaluations.

PUBLIC PUBLIC RISKS CONTINUED

We identified the material impacts on Unilever’s business arising specific to soy and can’t be applied to other crops. We have therefore from each of these scenarios based on existing internal and external decided to get broader understanding on the climate change risks data. The impacts were assessed without considering any actions that to our agricultural sourcing and extend our analysis to two other Unilever might take to mitigate or adapt to the adverse impacts or to important crops to Unilever: Palm Oil and Tea, for which suitable introduce new products which might offer new sources of revenue as climate change models for yield predictions will be available in 2019. consumers adjust to the new circumstances. RESPONDING TO RISKS AND OPPORTUNITIES The main impacts of the 2°C scenario were as follows: Unilever’s vision is to grow our business whilst decoupling our growth • Carbon pricing is introduced in key countries and hence there are from our environmental footprint and increasing positive social impact. increases in both manufacturing costs and the costs of raw materials This vision explicitly recognises that sustainable growth – including such as dairy ingredients and the metals used in packaging. management of climate-related risks and opportunities – is the only • Zero net deforestation requirements are introduced and a shift to way to create long-term value for all our stakeholders. sustainable agriculture puts pressure on agricultural production, raising the price of certain raw materials. The Unilever Sustainable Living Plan (USLP) was developed to deliver our vision. It is fully integrated with our business strategy. Climate- The main impacts of the 4°C scenario were as follows: related issues are integral to the USLP. Two of our GHG reduction • Chronic and acute water stress reduces agricultural productivity targets included in the USLP are recognised as science-based: in some regions, raising prices of raw materials. • Halve the greenhouse gas impact of our products across the • Increased frequency of extreme weather (storms and floods) lifecycle by 2030 (this target covers all the phases across the causes increased incidence of disruption to our manufacturing lifecycle of our products: ingredients/raw materials, manufacturing, and distribution networks. distribution, retail, packaging, consumer use and disposal) • Temperature increase and extreme weather events reduce • Reduce scope 1 and 2 greenhouse gas emissions by 100% from economic activity, GDP growth and hence sales levels fall. our own operations by 2030 (this is part of our ambition to be Our analysis shows that, without action, both scenarios present become carbon positive in our manufacturing by 2030) financial risks to Unilever by 2030, predominantly due to increased We are taking action across our value chain to reduce our emissions, costs. However, while there are financial risks which would need to creating growth opportunities and minimising risk. Our commitment be managed, we would not have to materially change our business to source 100% of our palm oil from sustainable sources is helping model. The most significant impacts of both scenarios are on our to avoid emissions from deforestation (see pages 14 and 47). Our supply chain where costs of raw materials and packaging rise, due efforts to reduce energy and GHG emissions in manufacturing are to carbon pricing and rapid shift to sustainable agriculture in a 2°C helping us to save costs. For example, by using less energy, we have scenario and due to chronic water stress and extreme weather in already avoided energy costs in our factories of over €600 million since a 4°C scenario. The impacts on sales and our own manufacturing our baseline year of 2008. operations are relatively small. Our divisions are taking action to reduce emissions. In Home Care we The results of this analysis confirm the importance of doing further are focusing on concentrated liquid laundry detergents such as Persil, work to ensure that we understand the critical dependencies of Omo and Surf Small & Mighty which help consumers to wash clothes climate change on our business and to ensure we have action plans at lower temperatures, reducing GHG by up to 50% per load. We have in place to help mitigate these risks and thus prepare the business removed phosphates from all laundry powders worldwide, resulting in for the future environment in which we will operate. lower greenhouse gas emissions of up to 50% per consumer use. Our During 2018 we developed and piloted an approach to assess the impact Foods & Refreshment division has prioritised reducing greenhouse of climate change on our key commodities. We selected soy for this pilot gas emissions from ice cream freezers since 2008. As the world’s Climate-related corporate reporting based on its importance to Unilever (large purchased volume), it being largest producer of ice cream, we have committed to accelerating the 34 RISKS CONTINUED a high-profile crop in the countries where it is grown and the availability roll-out of freezer cabinets that use more climate-friendly natural of good historical price data and suitable climate models. (hydrocarbon) refrigerants. By 2018 our total purchase of these cabinets had increased to around 2.9 million. We identified the material impacts on Unilever’s business arising specificWe developed to soy and a methodologycan’t be applied which to othercombined crops. forecasting We have therefore future DetailedUnilever Lifecycle Analysis PLC has shown that our GHG contribution from from each of these scenarios based on existing internal and external decidedyields to and get quantifying broader understanding the impact on on commodity the climate prices change of soybeanrisks oil. animal-based agriculture, including fats and proteins, is relatively data. The impacts were assessed without considering any actions that to ourClimate agricultural change sourcing was the onlyand extendprice factor our analysis accounted to twofor inother the model low: 7.5% for Foods & Refreshment and 2.5% for 2018 total Unilever. Unilever might take to mitigate or adapt to the adverse impacts or to importantused to cropscalculate to Unilever: the impact. Palm Other Oil andfactors Tea, which for which impact suitable price, such as Annual Report and Accounts While emissions are comparatively low, the business opportunity is introduce new products which might offer new sources of revenue as climatetechnology change and models acreage, for wereyield excluded.predictions The will model be available considered in 2019. the direct p34 significant for natural and plant-based foods and beverages. We have consumers adjust to the new circumstances. risks from climate change to the price of soybean oil, such as change a range of vegan and vegetarian variants such as Hellmann’s vegan RESPONDINGin yield and change TO RISKS in supply. AND Three OPPORTUNITIES modelling steps were performed: The main impacts of the 2°C scenario were as follows: mayonnaise, Ben & Jerry’s non-dairy ice creams, Magnum vegan and Unilever’s• Yield visionestimation: is to grow We analysedour business multiple whilst agriculture decoupling and our climate growth • Carbon pricing is introduced in key countries and hence there are other options (see pages 11 to 12). We continue to actively promote from ourmodels environmental to provide afootprint forecast and range increasing of expected positive yields social in key impact. increases in both manufacturing costs and the costs of raw materials vegetarian and vegan recipes, notably via our Knorr brand websites. This visiongrowing explicitly regions. recognises that sustainable growth – including What is helpful? such as dairy ingredients and the metals used in packaging. management• Price relationship: of climate-related An econometric risks and model opportunities was developed, – is the basedonly A number of our targets directly address risks and opportunities • Zero net deforestation requirements are introduced and a shift to way toon create an analysis long-term of the value soybean for all oil our market stakeholders. and historical trends, to related toThis water is an scarcity example caused of aby description climate change. of theWe estimatescenarios tested, some sustainable agriculture puts pressure on agricultural production, estimate the impact of climate-induced yield changes on future that the saleof the of productsassumptions which addressand effects, water scarcity with a issuesroadmap could for further raising the price of certain raw materials. The Unilever Sustainable Living Plan (USLP) was developed to deliver prices. This model considered the importance of co-products increasedisclosures. in our Home Care and Beauty & Personal Care divisions where our vision. It is fully integrated with our business strategy. Climate- a number of products are available which address water scarcity and/ The main impacts of the 4°C scenario were as follows: eg soybean meal, substitution potential eg with sunflower oil and related issues are integral to the USLP. Two of our GHG reduction or have a lower GHG in use. For example, our Beauty & Personal Care • Chronic and acute water stress reduces agricultural productivity industrial uses of soybean oil, as well as the impact of yield on price. targets included in the USLP are recognised as science-based: division is investing in water smart product innovations such as dry in some regions, raising prices of raw materials. • Impact estimation: Future yields and price impacts were then • Halve the greenhouse gas impact of our products across the shampoo and cleansing conditioner which help consumers use less translated into an estimated financial exposure from climate • Increased frequency of extreme weather (storms and floods) lifecycle by 2030 (this target covers all the phases across the water while also offering relevant benefits such as reduced colour change for our business, using our forecast procurement volumes. causes increased incidence of disruption to our manufacturing lifecycle of our products: ingredients/raw materials, manufacturing, loss and damage which can arise from frequent washing. Home Care and distribution networks. distribution,Our pilot analysis retail, showedpackaging, that consumer soybean yields use and may disposal) increase over is combining insights in consumer behaviour and water consumption • Temperature increase and extreme weather events reduce • Reducethe 2030 scope and 2050-time1 and 2 greenhouse horizon and gas that emissions subsequent by 100% lower from prices with innovative technology to develop new market opportunities, economic activity, GDP growth and hence sales levels fall. ourmay own then operations lead to small by 2030 potential (this is reductions part of our in ambition our procurement to be launching products and formulations that address water scarcity Our analysis shows that, without action, both scenarios present becomespend on carbon soy. While positive the inresults our manufacturing may indicate aby low 2030) financial risk and help our consumers save water. Day2, the world's first dry wash to our business, we would need to consider a wider range of risk spray is made with only 0.02% of the water in a normal laundry load. financial risks to Unilever by 2030, predominantly due to increased We are taking action across our value chain to reduce our emissions, factors when determining our strategic response. Indirect risks Sunlight 2-in-1 Handwashing Laundry Powder and Rin (Radiant) costs. However, while there are financial risks which would need to creating growth opportunities and minimising risk. Our commitment from climate change, such as catastrophic events or external policy detergent bar are also helping to reduce water consumption at point be managed, we would not have to materially change our business to source 100% of our palm oil from sustainable sources is helping response and adaptation could also have an impact but were not of use in water-stressed countries. model. The most significant impacts of both scenarios are on our to avoid emissions from deforestation (see pages 14 and 47). Our included in our modelling. Furthermore, these pilot results are supply chain where costs of raw materials and packaging rise, due efforts to reduce energy and GHG emissions in manufacturing are to carbon pricing and rapid shift to sustainable agriculture in a 2°C helping34 us to saveStrategic costs. For Report example, by using less energy, we have Unilever Annual Report and Accounts 2018 scenario and due to chronic water stress and extreme weather in already avoided energy costs in our factories of over €600 million since a 4°C scenario. The impacts on sales and our own manufacturing our baseline year of 2008. operations are relatively small. Our divisions are taking action to reduce emissions. In Home Care we The results of this analysis confirm the importance of doing further are focusing on concentrated liquid laundry detergents such as Persil, work to ensure that we understand the critical dependencies of Omo and Surf Small & Mighty which help consumers to wash clothes climate change on our business and to ensure we have action plans at lower temperatures, reducing GHG by up to 50% per load. We have in place to help mitigate these risks and thus prepare the business removed phosphates from all laundry powders worldwide, resulting in for the future environment in which we will operate. lower greenhouse gas emissions of up to 50% per consumer use. Our During 2018 we developed and piloted an approach to assess the impact Foods & Refreshment division has prioritised reducing greenhouse of climate change on our key commodities. We selected soy for this pilot gas emissions from ice cream freezers since 2008. As the world’s based on its importance to Unilever (large purchased volume), it being largest producer of ice cream, we have committed to accelerating the a high-profile crop in the countries where it is grown and the availability roll-out of freezer cabinets that use more climate-friendly natural of good historical price data and suitable climate models. (hydrocarbon) refrigerants. By 2018 our total purchase of these cabinets had increased to around 2.9 million. We developed a methodology which combined forecasting future Detailed Lifecycle Analysis has shown that our GHG contribution from yields and quantifying the impact on commodity prices of soybean oil. animal-based agriculture, including fats and proteins, is relatively Climate change was the only price factor accounted for in the model low: 7.5% for Foods & Refreshment and 2.5% for total Unilever. used to calculate the impact. Other factors which impact price, such as While emissions are comparatively low, the business opportunity is technology and acreage, were excluded. The model considered the direct significant for natural and plant-based foods and beverages. We have risks from climate change to the price of soybean oil, such as change a range of vegan and vegetarian variants such as Hellmann’s vegan in yield and change in supply. Three modelling steps were performed: mayonnaise, Ben & Jerry’s non-dairy ice creams, Magnum vegan and • Yield estimation: We analysed multiple agriculture and climate other options (see pages 11 to 12). We continue to actively promote models to provide a forecast range of expected yields in key vegetarian and vegan recipes, notably via our Knorr brand websites. growing regions. • Price relationship: An econometric model was developed, based A number of our targets directly address risks and opportunities on an analysis of the soybean oil market and historical trends, to related to water scarcity caused by climate change. We estimate Quick read Introduction Regulatory and market Investor expectations Appendix A – questions Appendix C – participants Appendix D – regulatory estimate the impact of climate-induced yield changes on future that the sale1 of products which address water2 scarcity issues could 3 Appendix B – examples 4 5 overview and company views and recommended and process and market initiatives prices. This model considered the importance of co-products increase in our Home Care and Beauty & Personal Care divisions where of developing practice disclosures eg soybean meal, substitution potential eg with sunflower oil and a number of products are available which address water scarcity and/ industrial uses of soybean oil, as well as the impact of yield on price. or have a lower GHG in use. For example, our Beauty & Personal Care division is investing in water smart product innovations such as dry • Impact estimation: Future yields and price impacts were then shampoo and cleansing conditioner which help consumers use less translated into an estimated financial exposure from climate water while also offering relevant benefits such as reduced colour change for our business, using our forecast procurement volumes. loss and damage which can arise from frequent washing. Home Care Our pilot analysis showed that soybean yields may increase over is combining insights in consumer behaviour and water consumption the 2030 and 2050-time horizon and that subsequent lower prices with innovative technology to develop new market opportunities, may then lead to small potential reductions in our procurement launching products and formulations that address water scarcity spend on soy. While the results may indicate a low financial risk and help our consumers save water. Day2, the world's first dry wash to our business, we would need to consider a wider range of risk spray is made with only 0.02% of the water in a normal laundry load. factors when determining our strategic response. Indirect risks Sunlight 2-in-1 Handwashing Laundry Powder and Rin (Radiant) from climate change, such as catastrophic events or external policy detergent bar are also helping to reduce water consumption at point response and adaptation could also have an impact but were not of use in water-stressed countries. included in our modelling. Furthermore, these pilot results are

34 Strategic Report Unilever Annual Report and Accounts 2018 Strategic report Our strategy To lead the way in sustainability (continued)

Sustainability governance DS Smith subscribes to several international standards and Risks arising from sustainability issues are considered by the guidelines relevant to corporate responsibility and business Verification Statement from Bureau Veritas UK Ltd Board as being among the key risks to the Group’s operations. conduct, including: Bureau Veritas UK Limited (Bureau Veritas) has been commissioned by DS Smith Plc. (DS Smith) to provide an independent opinion on the following environmental performance indicators: total energy consumption; total energy exported; Scope 1 and 2 greenhouse gas (GHG) emissions; raw material To manage and mitigate such risks adequately and effectively, usage; water consumption; total water effluent; landfill waste; discharge to air and water; and total production, for calendar year 2018. The reporting we have put in place policies and procedures for existing and • United Nations Global Compact; boundaries cover DS Smith’s global operations. emerging sustainability issues. These policies are periodically • United Nations Declaration of Human Rights and the Based on our verification activities and scope of work, nothing has come to our attention to suggest that the reported data does not provide a fair reviewed and updated, with action plans communicated to the Convention on the Rights of the Child; representation of environmental performance across the DS Smith group for the defined period. heads of each business unit. • International Labour Organisation Eight Fundamental Conventions; and DS Smith should be commended on its approach to environmental data collection, including the use of a central reporting system, clear responsibilities at Head Office and site levels, frequent data gathering, and the existence of an audit trail from source evidence to reported data at the sites visited. The Board receives regular reports on performance. The Group • Organisation for Economic Co-operation and Development Chief Executive is responsible for addressing sustainability- Guidelines for Multinational Enterprises. A full verification statement including methodology, limitations and exclusions can be found on the DS Smith website at related issues. The Health, Safety, Environment and https://www.dssmith.com/company/sustainability/our-environment/performance Sustainability Committee meets monthly. In addition, the For more information on our policies, procedures and Sustainability Steering Group, chaired by the Group General performance in any of these areas please see our Sustainability Counsel and Company Secretary, oversees the process for Taskforce on Climate-related Financial Disclosures (TCFD) Report 2019. Climate-related corporate reporting addressing sustainability-related issues and sets and monitors DS Smith supports the recommendations of the Financial Stability Board’s TCFD and in last year’s report committed to disclosing 35 internal targets and strategies to ensure sustainability-related relevant information. The table below summarises our progress, with reference to other pages in this report and other sources. risks and opportunities are appropriately managed. Residual issues are brought to the Board. DS Smith is committed to Disclosure Reference DS Smith plc conducting business in a socially and environmentally Governance 2019 responsible manner. Describe the Board’s oversight of climate-related risks Annual report and accounts 2019 p 34, 54 Annual Report and Accounts and opportunities. P35 and Describe management’s role in assessing and managing climate-related risks Annual report and accounts 2019 p 34 Sustainability Report 2019 Data and opportunities. p22 2018 vs 2018 vs 2015 2017 2018 2018 2017 % 2017 % Strategy Our performance: Carbon and energy (continued) KPI Unit of measure (baseline) (with acquisition) (like-for-like) (with acquisition) (like-for-like) Describe the climate-related risks and opportunities the organisation has Website article on climate risks Website

Scope 1 kt CO2e 1,678 1,660 1,750 1,604 5.4% -3.4% identified over the short, medium, and long-term. CDP Climate Change Website Describe the impact of climate-related risks and opportunities on the Website article on climate risks Website What is helpful? Scope 2 kt CO2e 355 352 527 385 49.7% 9.5% organisation’s businesses, strategy, and financial planning. CDP Climate Change Website This example includes a roadmap for what has been addressed Emissions from energy exports kt CO e 348 317 381 381 20.1% 20.1% 2 Describe the potential impact of different scenarios, including a 2°C scenario, — — inagainst the reporting a 2015 and baseline, what will althoughbe reported we in expectthe future. this to Total CO2e (net energy export) kt CO2e 1,686 1,695 1,897 1,609 11.9% -5.1% on the organisation’s businesses, strategy, and financial planning. increase next year as new paper mills come in scope. Energy exported GWh 962 892 905 861 1.4% -3.5% Risks and opportunities The energy intensive nature of paper mills remains Case study: paper power Describe the organisation’s processes for identifying and assessing climate- Website article on climate risks Website Total production kt nsp 8,059 8,234 9,734 8,325 18.2% 1.1% a challenge for the whole industry, therefore the related risks. next steps of our strategy are crucial. DS Smith’s Kemsley paper mill in Kent, which reprocesses Waste to landfill kt 87 118 210 164 77.6% 39.1% Describe the organisation’s processes for managing climate-related risks. — — 30 per cent of the UK’s recycled paper and card, has CO e per tonne of production kg CO e/tonne nsp 209 206 195 193 -5.4% -6.1% 2 2 Describe how processes for identifying, assessing, and managing climate- Annual report and accounts 2019 p 49 signed an agreement with energy provider E.ON to related risks are integrated into the organisation’s overall risk management. Sustainability Report Sustainability Report Beyond our targets Energy consumption* GWh – 8,667 10,947 9,396 26.3% 8.4% construct a state-of-the-art Combined Heat and Power Metrics and targets Climate-related Financial Disclosures (CHP) facility. The new plant will reduce carbon emissions * UK data: 25 per cent for energy consumption and 28 per cent for carbon emissions Disclose the metrics used by the organisation to assess climate-related risks — — DS Smith supports the recommendations by 36,000 tonnes per year and will have an electrical Methodology and opportunities in line with its strategy and risk management process. published by the Financial Stability Board’s Task capacity of c. 75MW. The mill has also recently installed a 1. Based on data from 248 in-scope sites. Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) CDP Climate Change Website Force on Climate-related Financial Disclosures 2. Figures from all years are based on data from sites we owned for the entirety of that year. The 2018 data is based on sites we have owned since emissions, and the related risks Sustainability Report Sustainability Report new Anaerobic Digestion plant which will turn waste into 1 January 2018. (TCFD). These are a series of recommendations, gas and grow the site’s renewable energy consumption. 3. Total production is the sum of printed reels and paper reels from our paper mills; plastics production (all types) from our Plastics sites; recovered fibre and Describe the targets used by the organisation to manage climate-related risks Annual report and accounts 2019 p 31 aimed at addressing the financial impact of climate other materials collected and processed through our Recycling depot network; finished wood products from our timber business and boxes and sheets sold and opportunities and performance against targets. to third parties from our Packaging sites and other types of packaging production from these sites. change on businesses worldwide. Our analysis (see 4. DS Smith collects and reports environmental data in accordance with the guidelines of the Global Reporting Initiative and the Greenhouse Gas Protocol (GHGP), to the extent that this is practicable. This year we have focused on establishing governance of climate risks and identifying and assessing their impact on our business. table below, or page 35 of DS Smith Annual report More information and policies

5. The CO2 and CO2e emissions were calculated using the UK DECC 2017 factors for all fuels. Our key identified risks are projected increases in carbon emissions costs and customer behaviour. Next year we will publish and accounts 2019) confirms that we are delivering • DS Smith Carbon and Energy Efficiency Policy 6. Where available, we use the emissions factor for bought electricity from the supplier of energy to our business (Scope 2 Market Value). If this figure is financial impact figures for climate risks, based on several climate change scenarios, and report on plans to mitigate these risks. not reported, the country’s emissions factor from the IEA is used instead (Scope 2 Location Value). Emissions from national grids use the AIB Residual Grid against seven recommendations and expect to meet • DS Smith CDP Climate Change submission Emissions Factors for those European countries for which they are available, otherwise they use the previous location emissions factors from the more next year. International Energy Agency (IEA) 2017 v1.03 (AR5 Applied). More details about our approach to TCFD and climate risk are available on our website and in our Sustainability Report 2019. • CEPI Investing in Europe for Industry 7. The CHP that supplies our Witzenhausen paper mill with steam is fired predominantly by refuse-derived fuels. The emissions factor for this site has been Transformation 2050 Roadmap estimated as 32.77 kg/MWh of CO2e . The principal climate-related risks we identified are 8. The CHP that supplies our Belišće paper mill and corrugator with steam and electricity is fired by a combination of natural gas and flare gas. The emissions carbon pricing regulation and customer behaviour, • TCFD website factor for flare gas is estimated to be 240 kg/MWh of CO2e . 9. The waste figures relate to waste generated by our operations; they do not include waste that is collected from external sources for recycling. which are now integrated into our Group risk 10. Where water effluent figures are available from meters and invoices, they are used here, otherwise they are calculated to be 50 per cent of the water practices and governance structure. We are now abstracted and brought on-site. working to quantify the financial impacts of these risks, based on several climate change scenarios, 34 Annual report & accounts 2019 | dssmith.com 35 and will set plans to mitigate them.

Disclosure Reference Governance Describe the board’s oversight of climate-related risks and opportunities. Annual report and accounts 2019 pg 34, 55 Quick read Introduction Regulatory and market 1 Investor expectations 2 Appendix A – questions 3DescribeAppendix Bmanagement’s – examples 4 roleAppendix in assessing C – participants and managing5 Appendix climate-related D – regulatory risks and Annual report and accounts 2019 pg 34 overview and company views and recommended opportunities.of developing practice and process and market initiatives disclosures Strategy Describe the climate-related risks and opportunities the organisation has identified Website article on climate risks Website over the short, medium, and long term. CDP Climate Change Website Describe the impact of climate-related risks and opportunities on the organisation’s Website article on climate risks Website businesses, strategy, and financial planning. CDP Climate Change Website Describe the potential impact of different scenarios, including a 2° c scenario, on the – – organisation’s businesses, strategy, and financial planning. Risks and opportunities Describe the organisation’s processes for identifying and assessing climate-related Website article on climate risks Website risks. Describe the organisation’s processes for managing climate-related risks. – – Describe how processes for identifying, assessing, and managing climate-related risks Annual report and accounts 2019 pg 49 are integrated into the organisation’s overall risk management. Sustainability Report 2019 pg 39 Metrics and targets Disclose the metrics used by the organisation to assess climate-related risks and – – opportunities in line with its strategy and risk management process. Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) CDP Climate Change Website emissions, and the related risks. Sustainability Report 2019 pg 44 Describe the targets used by the organisation to manage climate-related risks and Annual report and accounts 2019 pg 32 opportunities and performance against targets. Sustainability Report 2019 pg 9, 21, 22

22 TCFD implementation update Taskforce on climate-related financial disclosures

Barclays is a member of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), and signed the Statement of Support for the TCFD Recommendations, which were published in June 2017. This section outlines the progress Barclays has made to date in adopting these voluntary recommendations, and presents our plan on how we will achieve alignment to the recommendations over time.

The TCFD recommendations aim to improve In addition to general guidance for all sectors, TCFD implementation programme overview the disclosure of information to allow the TCFD includes specific recommendations The TCFD Implementation Forum, was investors, regulators and other stakeholders to for banks. These include alignment with established as a senior management forum in better assess and manage the risks and traditional banking industry risk categories late 2017 to provide oversight and drive opportunities resulting from climate change; such as credit risk, market risk, liquidity risk, implementation of the TCFD recommendations. we rely on appropriate disclosures from clients and operational risk. Banks are also The Forum has representation from across the to inform our own climate-related sector risk encouraged to provide information on credit bank, including: Group CEO Office; Green Climate-relatedmanagement. corporate Clear understanding reporting and exposures to ‘carbon-related’ assets and the Banking; Strategy; Compliance; Corporate analysis of potential financial risks and amount of lending and other financing Relations, including Reputation Risk; Credit Risk; 36 opportunities in short, medium and longer connected with climate-related opportunities. Investor Relations and business teams from term horizons is still at an early stage. We The guidance recognises that detailed both Barclays International and Barclays UK. anticipate that disclosures will continue to standardised definitions are not yet See below for a summary of progress to date and develop over time, supported by improved established and Barclays is working with a SSE plc areas of focus for future years. We have increased Whatanalytical is tools, helpful? data and market practice. This range of forums to support more detailed disclosures within relevant documents in the will support Barclays as a user of climate technical guidance in these areas. Annual Report 2019 The Barclays examples describes progress to date and further plans. Barclays PLC Annual Report suite. disclosures across industry sectors and p5, 9, 13, 16, 28, 29, 116, 117 subsequently inform our own disclosures as a preparer.

requesting that companies disclose more In 2018/19, coal-fired generation contributed Advocating for carbon pricing meaningful climate-related information. just 2%, renewable generation (inc. pumped In November 2018, SSE joined other leading storage) 32% and gas- and oil-fired generation businesses in writing to the Prime Minister to 66% of SSE’s total generation output call for the adoption of a Net Zero emissions (compared to 4%, 28% and 66% respectively in target by 2050. In addition, in his role as 2017/18). In 2018/19, SSE began construction Vice President of industry body Eurelectric, of its new Combined Cycle Gas Turbine SSE’s Chief Executive Alistair Phillips-Davies (CCGT) power station Keadby 2, in North launched a new study that demonstrates how Lincolnshire, which will be the most efficient the European power sector can become fully thermal power station on the UK power carbon neutral by 2045 through investment in system when completed in early 2022. renewable energy and electricity networks.

SSE also continued to promote a strong Renewable generation output carbon price by advocating to the Chancellor (inc. pumped storage) (GWh) along with other power companies ahead of the Budget in November 2018, calling for 2018/19: 9,779 Government to keep the Total Carbon Price CLIMATE CHANGE AND ENVIRONMENT 2017/18: 9,428 stable during the period of uncertainty around Brexit and the UK’s future participation in the EU ETS. SSE also supported carbon pricing This enhanced disclosure reflects the (2) To support the UK to decarbonise by through submissions to consultations on additional steps taken in 2018/19 to assess enabling more renewable generation to Ireland’s National Energy and Climate Plan. and report on SSE’s material climate-related connect to the electricity transmission risks and opportunities, along with the network the North of Scotland. In addition, SSE made the case for increased financial quantification of the impacts for UK offshore wind ambition setting out the a number of these. SSE has invested over £2.7bn since 2013 in proven ability of offshore wind to deliver new electricity transmission infrastructure and clean power cost effectively at a time when In 2018, SSE was awarded an “A-” for its has a total planned investment of over £600m new nuclear is facing challenges. SSE has response to the CDP Climate Change by the end of the current transmission price been a vocal advocate for the development control period in 2021. This investment 28 Barclays PLC Environmental Social Governance Report 2018 home.barclays/annualreport Programme. SSE will continue to respond of offshore wind in Ireland, and particularly Barclays plc to the CDP Climate Change Programme is increasing the capacity of the network, for support of this technology through and aims to further improve its disclosure. allowing the renewable energy generated in Ireland’s upcoming Renewable Electricity 2018 the North of Scotland to be transported south Support Scheme. Barclays PLC Environmental Social Governance Report to areas of higher demand. In doing this, SSE’s p 28 Strategy transmission network is playing a key role in supporting the UK to achieve its carbon targets. Risk management Supporting the low-carbon In 2018/19, around 1GW of new renewable transition generation capacity was connected, bringing Managing climate-related risks Decarbonisation represents a significant and low-carbon opportunities Quick read Introduction Regulatory and market Investor expectations Appendix A – questions Appendix C – participants Appendixthe totalD – regulatory to over 6GW, up from around 3.3GW 1 2 3 Appendix B – examplesopportunity 4 for SSE’s businesses. SSE’s 5 While climate change, and the imperative to overview and company views and recommended of developing practice and process and marketin 2013. initiatives disclosures renewables portfolio and electricity decarbonise energy systems, provides SSE networks provide the core infrastructure Green finance with its commercial opportunities it creates to support the transition to a low-carbon As part of SSE’s strategy for supporting a business risks too. SSE identifies and evaluates energy system, complemented by thermal low-carbon economy, it is using financial risk at both Group and divisional (including plant that provides vital flexibility, offsetting markets as a progressive agent for change assets) level. The Group Risk Management the variability of renewables output. and climate action. In September 2018, Framework has been designed to ensure, SSE issued its second Green Bond of €650m. amongst other things, SSE is in a position to To realise these opportunities and contribute This, in addition to the company’s inaugural address the issue of climate change, whether significantly to the transition to low-carbon €600m Green Bond issued in September as a risk or as an opportunity. This framework electricity systems in the UK and Ireland, 2017, means SSE is the largest issuer of Green is outlined on pages 110 and 111 . SSE’s approach has been two-pronged: Bonds in the UK corporate sector. Addressing climate change requires (1) To reduce the carbon intensity of SSE also refinanced its £1.3bn Revolving adaptation as well as mitigation, as reflected its own operations through a strategic Credit Facility (RCF) in March 2019 linked in SSE’s approach to risk management. shift towards a less fossil fuel intensive to sustainability criteria. The RCF now Climate change and its impacts are generation portfolio. incorporates an innovative feature, considered throughout SSE’s Group Principal which adjusts the interest rate and fees Risks (see pages 66 to 71 ). SSE has invested over £3.8bn in renewables paid depending on SSE’s performance since 2010. With the delivery of the 588MW against an ESG (environmental, social In line with its approach to help stakeholders Beatrice offshore wind farm (SSE share: 40%) and governance) score determined by properly assess performance, SSE has in May 2019, SSE currently has the largest Vigeo Eiris, an independent global provider increased transparency of how it is managing renewable energy capacity across the UK of ESG research. SSE is one of the first UK its most material climate-related risks and Ireland at around 4GW (inc. pumped corporates to convert to an ESG-linked RCF. and low-carbon opportunities, through storage), and has significant opportunities more detailed disclosure and analysis in its in onshore and offshore wind farm Sustainability Report 2019 . developments, with an 8GW pipeline.

SSE plc Annual Report 2019 29 Climate-related corporate reporting 37

Governance and management

In order to help investors understand how boards consider and assess climate-related issues, companies TCFD expects should ask themselves… companies to:

Examples

+ notes where the questions align with expectations for reporting in the TCFD’s ‘Guidance for all sectors’ Business model

Royal Dutch Shell plc Annual Report and Form 20F 2018 p95

What is helpful? This example outlines some of the information seen by the board. It also states that the company has committed to setting short-term targets linked to executive remuneration in the pursuit of around 50 per cent Net Carbon Footprint reduction by 2050.

Unilever PLC Annual Report and Accounts 2018 p30, 33

What is helpful? This example shows a description of risk and governance arrangements, and a description of climate-related opportunities.

National Grid has committed to implementing the recommendations Future intent of the Financial Stability Board’s Task Force on Climate-related In view of the centrality of decarbonisation of electricity and heat Financial Disclosures in full, and below we include our second set to our day-to-day operations, we believe we have a good base level of disclosures following on from our initial disclosure in 2017/18. of experience and knowledge within senior management (including at Board and Executive levels). However, we are not complacent In February 2019, the Executive Committee considered the current and the Executive Committee will review and consider our position status of compliance with TCFD and three key areas where further and any plans for enhancement, later in 2019. work is planned in the next 12 months: a) ensuring senior leadership has an appropriate understanding What are the risks and opportunities from climate change? of the risks and opportunities associated with climate change; We consider risks and opportunities in terms of physical and transition b) the use of climate-related scenarios to inform our strategy (and risks. Reports concerning our UK operations under the 2008 Climate disclosure of the possible outcomes under those scenarios); and Change Act were released in 2010 and updated in 2016. c) the development of metrics and targets to assess performance, and influence decision-making and remuneration. Physical risks In the short term, physical risks are most relevant, and we are principally The Audit Committee also considered our progress to date in focused on the risks from weather-related events in the US, and March 2019. We continue to engage with investors, peers and flooding events (in both the UK and US). other stakeholders and welcome feedback on these disclosures. • Weather-related events in the northeastern US: Storm How do we approach the governance of climate-related risks planning and preparation is core to what we do, given they are an and opportunities? increasingly regular feature of autumn, winter and spring seasons The Board of Directors is responsible for the oversight of climate- and the impact on our customers and other operating activities is related risks and opportunities impacting the Group. Our Group risk significant. These activities are principally focused on our electric register contains a strategic risk around disruptive forces, which businesses (with above-ground wiring). However, we have also includes climate change. experienced impact within our gas distribution business since extreme temperatures can impact gas supplies throughout the Examples of relevant Board discussions in the last 12 months include: continental pipeline network. As noted in the financial review, this year we incurred over $100 million of local and major storm costs, i) understanding impact on electricity networks of decarbonisation the majority of which are recoverable under our rate plans. of transport and National Grid’s role in advancing the build-out of Significant storm hardening activities for gas assets continue on electric vehicle charging infrastructure; Long Island and in New York City as a key element of our response ii) strategic intent to enter large-scale renewables, directing capital following hurricane Sandy. Climate-related corporate reporting towards build-out of low carbon energy systems, and we have National Grid Annual Report and Accounts 2018/19 Additional Information • Flood defence (UK and US):40 In the UK, at 31 March 2019, we recently announced our first acquisition (Geronimo Energy) due had invested £88 million in flood defences and expect to invest to close later this year; additional amounts in RIIO-T2. The National Flood Resilience Review iii) continual challenge and review of investment into UK (NFRR) carried out in 2016 and agreed by government has resulted WhatTask is helpful? Force on Climate-related interconnectors and US competitive transmission,National which help Grid plc in flood resilience investment works being developed to cover over provide the flexibility critical to managing a high-renewables 100 sites in line with a sector-wide response to flooding. This is ThisFinancial example sets out the governance Disclosures arrangements in place, who has (TCFD)responsibility, integration electricityinto the system; and Annual Report and Accountssupported 2018/19 by assessment of further sites with increasing exposure risk management process and a view to the future, including a consideration of the necessary skillset. iv) discussions on future of heat and National Grid’sp210 role in advancing of assets to geo-hazards resulting from climate change, sea level heat decarbonisation pathways, with a focus on the consumer. rise, changes to rainfall patterns and secondary impacts from increased flooding and surface water issues. In the US, Flood National Grid has committed to implementing the recommendations FutureHow intent does the Board delegate responsibility for day-to-day Contingency Plans (FCPs) are being developed for our most at-risk US substations and extreme weather is considered the of the Financial Stability Board’s Task Force on Climate-related In viewoperational of the centrality activity? of decarbonisation of electricity and heat Financial Disclosures in full, and below we include our second set ‘new normal’. Our coastal substations are being built and maintained to our day-to-dayResponsibility operations, for asset investmentwe believe weand have maintenance a good base planning level is to elevated levels in response to an increased risk of flooding. of disclosures following on from our initial disclosure in 2017/18. of experiencedelegated and to knowledgethe Executive within Committee senior management and onto the (including core regulated at Boardbusinesses, and Executive each oflevels). which However, operate werobust are investmentnot complacent appraisal and • Other potential physical risks: We are investigating other In February 2019, the Executive Committee considered the current and thereview Executive processes. Committee will review and consider our position potential risks such as the impact of rising temperatures and status of compliance with TCFD and three key areas where further and any plans for enhancement, later in 2019. widening temperature ranges on the performance and operation work is planned in the next 12 months: In the case of National Grid Ventures, responsibility for new of the equipment on our networks. Disruption to our global supply a) ensuring senior leadership has an appropriate understanding Whatinvestments are the risks up andto £250 opportunities million has beenfrom delegated climate change? to the Group chain (continuity of supply) is recognised as a key risk within our global procurement division’s risk register. of the risks and opportunities associated with climate change; We considerInvestment risks Committee, and opportunities chaired in by terms the Group of physical CEO. and This transition Committee also oversees investments made by National Grid Partners, which b) the use of climate-related scenarios to inform our strategy (and risks. Reports concerning our UK operations under the 2008 Climate Transition risks and opportunities disclosure of the possible outcomes under those scenarios); and Changeover the Act were last released12 months in 2010have andincluded updated a number in 2016. of early stage innovative businesses working at the forefront of climate change • Decarbonisation: Facilitating the transition to a low carbon c) the development of metrics and targets to assess performance, Physicalimpacts risks as they concern utilities. economy is central to our purpose as a business and the Strategic and influence decision-making and remuneration. Report on page 41 sets out certain key actions in relation to In the Whatshort term,is the physical oversight risks process are most for relevant, climate and change we are principallyrelated decarbonisation and decentralisation. The Audit Committee also considered our progress to date in focusedrisks and on the risks opportunities? from weather-related events in the US, and March 2019. We continue to engage with investors, peers and flooding events (in both the UK and US). • Electricity grid reliability and peak capacity: Our principal other stakeholders and welcome feedback on these disclosures. The Safety, Environment and Health Committee (SEH Committee) focus is around ensuring that our electricity network is able to • Weather-relatedis responsible for events assessing in the how northeastern the Company US: adapts Storm its business actively support and contribute to a future where demand for and How do we approach the governance of climate-related risks planningin light and of climate preparation change. is core to what we do, given they are an supply of electricity are ever changing. With growth in renewables and opportunities?National Grid Annual Report and Accounts 2018/19 Additional Informationincreasingly regular feature of autumn, winter and spring seasons increasing intermittency on the network, and electrification of andThe the SEHimpact Committee on our customers does not andhave other a remit operating to consider activities the financial is transport and heat likely, we are working with our stakeholders to The Board of Directors is responsible for the oversight of climate- implications of climate change. The Audit Committee remains ensure that grid reliability is understood, managed and planned at related risks and opportunities impacting the Group. Our Group risk significant. These activities are principally focused on our electric Task Force on Climate-relatedbusinessesresponsible (with for above-ground reviewing and wiring). approving However, the content we have of ouralso TCFD appropriate levels. Even with increased decentralisation of electricity, register contains a strategic risk around disruptive forces, which disclosures and will take an increasingly active role in overseeing our long-term analysis demonstrates a key role for Electricity includes climate change. experienced impact within our gas distribution business since extremedisclosures temperatures around canmetrics impact and gas targets. supplies A paper throughout summarising the Transmission in the UK in a range of scenarios that meet the Financial Disclosures (TCFD)our progress in our journey towards full compliance with the UK’s 2050 climate change goals. Examples of relevant Board discussions in the last 12 months include: continental pipeline network. As noted in the financial review, this yearrecommendations we incurred over was$100 considered million of local at the and March major 2019 storm Audit costs, i) understanding impact on electricity networks of decarbonisation the Committee meeting.majority of which are recoverable under our rate plans. of transport and National Grid’s role in advancing the build-out of Significant storm hardening activities for gas assets continue on electricNational vehicle Grid charging has committed infrastructure; to implementing the recommendations LongFuture Island intent and in New York City as a key element of our response ii) strategicof the intentFinancial to enter Stability large-scale Board’s renewables, Task Force ondirecting Climate-related capital followingIn view hurricane of the centrality Sandy. of decarbonisation of electricity and heat towardsFinancial build-out Disclosures of low carbonin full, and energy below systems, we include and ourwe havesecond set to our day-to-day operations, we believe we have a good base level of disclosures following on from our initial disclosure in 2017/18. • Flood defence (UK and US): In the UK, at 31 March 2019, we recently announced our first acquisition (Geronimo Energy) due had investedof experience £88 andmillion knowledge in flood defences within senior and managementexpect to invest (including to close later this year; at Board and Executive levels). However, we are not complacent In February 2019, the Executive Committee considered the current additional amounts in RIIO-T2. The National Flood Resilience Review iii) continual challenge and review of investment into UK (NFRR)and the carried out Executive in 2016Committee and agreed will review by government and consider has our resulted position status of compliance with TCFD and three key areas where further and any plans for enhancement, later in 2019. interconnectorswork is planned and in US the competitive next 12 months: transmission, which help in flood resilience investment works being developed to cover over provide the flexibility critical to managing a high-renewables 100 sites in line with a sector-wide response to flooding. This is electricitya) ensuring system; senior and leadership has an appropriate understanding supportedWhat are by assessmentthe risks and of opportunitiesfurther sites with from increasing climate exposure change? of the risks and opportunities associated with climate change; iv) discussions on future of heat and National Grid’s role in advancing of assets210We consider to geo-hazards risks and resulting opportunities from climatein terms change, of physical sea andlevel transition heatb) decarbonisationthe use of climate-related pathways, scenarios with a focus to informon the ourconsumer. strategy (and rise,risks. changes Reports to rainfall concerning patterns our and UK secondaryoperations impactsunder the from 2008 Climate disclosure of the possible outcomes under those scenarios); and increasedChange flooding Act were and released surface in water 2010 issues. and updated In the US,in 2016. Flood How doesc) the thedevelopment Board delegate of metrics responsibility and targets to for assess day-to-day performance, Contingency Plans (FCPs) are being developed for our most operationaland influenceactivity? decision-making and remuneration. at-risk USPhysical substations risks and extreme weather is considered the Quick read Introduction Regulatory and market Investor expectations Appendix A – questions Appendix C – participants Appendix D – regulatory 1 ‘new normal’.In the short Our term,2 coastal physical substations risks are aremost3 beingAppendix relevant, built B –and examples wemaintained are principally4 5 Responsibility for asset investment and maintenanceoverview planning is and companyto elevated views levels inand response recommended to an increasedof developing risk of flooding. practice and process and market initiatives delegatedThe Auditto the Committee Executive Committee also considered and onto our progressthe core regulatedto date in focused on thedisclosures risks from weather-related events in the US, and businesses,March 2019. each of We which continue operate to engage robust investmentwith investors, appraisal peers andand • Otherflooding potential events physical (in both therisks: UK Weand are US). investigating other reviewother stakeholders processes. and welcome feedback on these disclosures. potential risks such as the impact of rising temperatures and widening• Weather-related temperature ranges events on inthe the performance northeastern and US:operation Storm In the Howcase ofdo National we approach Grid Ventures, the governance responsibility of climate-relatedfor new risks of the planningequipment and on preparation our networks. is core Disruption to what to we our do, global given supply they are an investmentsand opportunities? up to £250 million has been delegated to the Group chain increasingly(continuity of regular supply) feature is recognised of autumn, as awinter key risk and within our spring seasons InvestmentThe Board Committee, of Directors chaired is responsibleby the Group for CEO. the oversight This Committee of climate- globaland procurement the impact division’s on our customers risk register. and other operating activities is also overseesrelated risks investments and opportunities made by National impacting Grid the Partners, Group. Our which Group risk significant. These activities are principally focused on our electric over theregister last 12 contains months a have strategic included risk arounda number disruptive of early forces,stage which Transitionbusinesses risks and (with opportunities above-ground wiring). However, we have also innovativeincludes businesses climate workingchange. at the forefront of climate change • Decarbonisation:experienced impactFacilitating within the our transition gas distribution to a low businesscarbon since impacts as they concern utilities. economyextreme is central temperatures to our purpose can impact as a business gas supplies and throughoutthe Strategic the Examples of relevant Board discussions in the last 12 months include: Reportcontinental on page 41 pipeline sets out network. certain As notedkey actions in thein relation financial to review, this year we incurred over $100 million of local and major storm costs, What i)is understandingthe oversight impact process on forelectricity climate networks change of related decarbonisation decarbonisation and decentralisation. risks and opportunities? the majority of which are recoverable under our rate plans. of transport and National Grid’s role in advancing the build-out of • ElectricitySignificant grid stormreliability hardening and peak activities capacity: for gas Ourassets principal continue on The Safety,electric Environment vehicle charging and Health infrastructure; Committee (SEH Committee) focus Longis around Island ensuring and in Newthat ourYork electricity City as a networkkey element is able of ourto response is responsibleii) strategic for intentassessing to enter how large-scale the Company renewables, adapts its directing business capital activelyfollowing support hurricane and contribute Sandy. to a future where demand for and in light oftowards climate build-outchange. of low carbon energy systems, and we have supply of electricity are ever changing. With growth in renewables increasing• Flood intermittency defence (UK on andthe network, US): In the and UK, electrification at 31 March of 2019, we recently announced our first acquisition (Geronimo Energy) due had invested £88 million in flood defences and expect to invest The SEHto close Committee later doesthis year; not have a remit to consider the financial transport and heat likely, we are working with our stakeholders to implications of climate change. The Audit Committee remains ensureadditional that grid amountsreliability inis understood,RIIO-T2. The managedNational Flood and planned Resilience at Review responsibleiii) continual for reviewing challenge and and approving review of the investment content of into our UK TCFD appropriate(NFRR) levels. carried out Even within 2016 increased and agreed decentralisation by government of electricity, has resulted disclosuresinterconnectors and will take andan increasingly US competitive active transmission, role in overseeing which help our long-termin flood resilience analysis demonstrates investment works a key being role for developed Electricity to cover over disclosuresprovide around the metricsflexibility and critical targets. to managing A paper summarisinga high-renewables Transmission100 sites in inthe line UK with in aa rangesector-wide of scenarios response that to meet flooding. the This is our progresselectricity in our system; journey and towards full compliance with the UK’s 2050supported climate by change assessment goals. of further sites with increasing exposure recommendationsiv) discussions was on consideredfuture of heat at theand March National 2019 Grid’s Audit role in advancing of assets to geo-hazards resulting from climate change, sea level Committeeheat meeting. decarbonisation pathways, with a focus on the consumer. rise, changes to rainfall patterns and secondary impacts from increased flooding and surface water issues. In the US, Flood How does the Board delegate responsibility for day-to-day Contingency Plans (FCPs) are being developed for our most operational activity? at-risk US substations and extreme weather is considered the ‘new normal’. Our coastal substations are being built and maintained Responsibility for asset investment and maintenance planning is to elevated levels in response to an increased risk of flooding. delegated to the Executive Committee and onto the core regulated businesses, each of which operate robust investment appraisal and • Other potential physical risks: We are investigating other review processes. potential risks such as the impact of rising temperatures and widening temperature ranges on the performance and operation In the case of National Grid Ventures, responsibility for new of the equipment on our networks. Disruption to our global supply investments up to £250 million has been delegated to the Group chain (continuity of supply) is recognised as a key risk within our global procurement division’s risk register. 210 Investment Committee, chaired by the Group CEO. This Committee also oversees investments made by National Grid Partners, which over the last 12 months have included a number of early stage Transition risks and opportunities innovative businesses working at the forefront of climate change • Decarbonisation: Facilitating the transition to a low carbon impacts as they concern utilities. economy is central to our purpose as a business and the Strategic Report on page 41 sets out certain key actions in relation to What is the oversight process for climate change related decarbonisation and decentralisation. risks and opportunities? • Electricity grid reliability and peak capacity: Our principal The Safety, Environment and Health Committee (SEH Committee) focus is around ensuring that our electricity network is able to is responsible for assessing how the Company adapts its business actively support and contribute to a future where demand for and in light of climate change. supply of electricity are ever changing. With growth in renewables increasing intermittency on the network, and electrification of The SEH Committee does not have a remit to consider the financial transport and heat likely, we are working with our stakeholders to implications of climate change. The Audit Committee remains ensure that grid reliability is understood, managed and planned at responsible for reviewing and approving the content of our TCFD appropriate levels. Even with increased decentralisation of electricity, disclosures and will take an increasingly active role in overseeing our long-term analysis demonstrates a key role for Electricity disclosures around metrics and targets. A paper summarising Transmission in the UK in a range of scenarios that meet the our progress in our journey towards full compliance with the UK’s 2050 climate change goals. recommendations was considered at the March 2019 Audit Committee meeting.

210 Climate-related corporate reporting 41

Business model and strategy Examples

• What does the company look like in the future and how will it continue to generate An approach is to outline strategic plans for reaching net zero by General Mills Inc and p48, 49 value? What strategy does the company have for responding to the challenges? 2050, including reference to the IPCC recommended 1.5 degree Ørsted A/S pathway, and an indication of strategic decisions being made in • How was the decision about the materiality of climate-related issues made? + light of this • What opportunities and risks concerning climate-related issues are most relevant to the One approach is to explain the challenges a company faces at each Fresnillo plc p50 company’s business model and strategy? Which, if any, of these are financially material? asset location What process has been followed in order to assess the impact of climate-related issues?+ • Where do the biggest risks and opportunities sit? + One approach is to disclose an internal carbon price used for Oil Search Limited p51 • Has the company considered the impact of low-carbon transition as well as physical strategic planning purposes risk? • What are the relevant short, medium and long-term horizons? How do these different horizons affect key divisions, markets, products and/or revenue/profit drivers? + An approach is to discuss the horizons over which different issues Aviva plc, Land p52, • How resilient is the business model to climate change? How does the company respond have been considered, and what those timeframes are Securities Group PLC, 75-77 Bloomberg L.P. and to a 1.5 degree, 2 degree or more world? + 58-59 • What strategy has been put in place to reach that aim, and what operational or capital expenditures are needed to address any necessary business model changes? How are long-term projects structured to ensure flexibility, including options for de- emphasising and emphasising if circumstances should dictate? + TCFD expects companies to: • What are the possible effects on the company’s revenues, expenditures, assets, Disclose the actual and potential impacts of climate-related risks and opportunities on the liabilities, products, customers, suppliers etc of different climate scenarios? organisation’s businesses, strategy, and financial planning where such information is material • How does the information gathered factor into strategic planning? What triggers • Describe the climate-related risks and opportunities the organisation has identified over the would require a change of direction? short, medium and long term • Are there opportunities better to explain exposure to particular product lines or 'green' • Describe the impact of climate-related risks and opportunities on the organisation’s revenues? businesses, strategy and financial planning • How are the risks and opportunities reflected in the financial statements, for • Describe the resilience of the organisation’s strategy, taking into consideration difference example the effect of assumptions used in impairment testing, depreciation climate-related scenarios, including a 2 degree or lower scenario rates, decommissioning, restoration and other similar liabilities and financial risk disclosures? + notes where the questions align with expectations for reporting in the TCFD’s ‘Guidance for all sectors’

What is helpful? SSE plc SSE plc articulates its climate-related opportunities, including actions to realise the Sustainability Report 2019 opportunity, the scale of its capital investments in these opportunities, and the potential p24,25 effect it may have. These disclosures are structured around the TCFD framework.

SUSTAINABILITY REPORT CLIMATE-RELATED RISKS AND OPPORTUNITIES Climate-related OPPORTUNITIES

Opportunity described: Potential financial impact of the opportunity: SSE’s actions to realise the opportunity: Potential financial impact

Development and expansion of SSE’s off- and SSE has an off- and on-shore wind development pipeline at varying stages of • SSE has a pipeline of over 8GW of potential new wind development opportunities. With over 1GW of Highly significant on-shore wind pipeline to support a low-carbon development of over 8GW. The portfolio has the potential to generate significant potential new onshore wind projects and a further 7GW of potential offshore wind projects. SSE will opportunity for additional electricity system. additional earnings for SSE. However, SSE is not yet in a position to quantify the develop these projects in partnership and will recycle some capital to support further development. growth. scale of this opportunity given the imminent competitive CfD auction being • SSE has interests in three UK wind projects which are expected to be eligible for the CfD in 2019: 50% In a low-carbon world, new off- and on-shore wind has an run by the UK Government. The 2019 CfD auction is designed to enable the of Dogger Bank (up to 3.6GW); Seagreen (Phase One up to 1,050MW) and Viking onshore wind farm important role to play. The UK Government’s sector deal has development of up to 6GW of new renewable energy projects in the UK. on Shetland (around 450MW). SSE has further offshore wind project interests in Seagreen Phases 2 and committed to an additional 30GW of installed offshore wind 3, Greater Gabbard Extension and Arklow Bank Wind Park in Ireland. capacity by end of 2030. The combination of strong carbon The potential financial impact of this climate-related opportunity represents • SSE engages with UK and Irish Governments, European Commission, Members of European price, high energy price and continued access to Contracts one of the most significant available to SSE both in the short- and long-term. Parliament and others on low-carbon policies. for Difference (CfD) or other price stabilisation mechanism Given the highly competitive – and current – nature of the CfD process, it is would continue to support an investment case for SSE in not appropriate to give estimates of the scale of opportunity at this time. SSE off- and on-shore wind projects. expects to give TCFD-style disclosure of the renewables pipeline opportunity in the future.

Investment in transmission infrastructure in the north SSEN Transmission has a current pipeline of transmission projects with a total • SSEN operates the transmission network in the north of Scotland, where the vast majority of electricity Additional earnings of up of Scotland to support the delivery of an accelerated planned investment of over £600m up to 2021 as part of RIIO-T1. For the next transmitted is from renewable sources. This network enables the renewable energy generated in the to £100m per year over low-carbon electricity system. price control period from 2021 to 2023 SSEN has drafted its Emerging Thinking north of Scotland to be transmitted down south to areas of higher demand. the period 2022 to 2030. 2019 paper that forms the basis of the RIIO-T2 business plan. This plan identifies • In 2018/19 SSEN increased the renewables capacity supported by its network by over 1GW, installed The UK Government’s Climate Change Act 2008, its potential investment in the transmission network in the range of £300 to renewable electricity generation capacity connected to SSEN’s transmission network grew from Clean Growth Strategy (published 2017), and its Industrial £700 million per annum to support the potential connection of 7.5GW of new 3.3GW in April 2013 to over 6GW in April 2019. Strategy, describe the mechanisms for the UK to transition renewables in this period. In addition, there is potential for investment in three • SSEN has a pipeline of transmission projects, with a total planned investment of over £600m up to to a low-carbon economy. These policies have led to an island links of around £1.5bn for SSEN over the next 10 years. 2021. increase in renewable generation contributing to the GB electricity network. With the Committee on Climate Change Additional earnings of up to £100m per year over the period 2022 to 2030 as report on Net Zero, an accelerated path towards further a result of capital investment*. decarbonisation is plausible. SSEN’s transmission network * this is reflective our Emerging Thinking 2019 paper and investment up to plays a key role connecting the sources of renewable 2026 with steady state investment for the remaining period to 2030. generation to the areas of high demand.

Decarbonisation of the electricity system provides the SSE has 1,450 MW of existing hydro capacity (inc. pumped storage) and has • SSE is investing in a diversified generation portfolio of renewable and flexible generation assets Up to £400m potential opportunity to increase output and earnings planning consent for an additional 600MW of pumped storage. SSE has invested (including hydro generation assets). additional revenue from flexible and renewable hydro assets. in its hydro generation assets to increase flexibility to the UK grid. It is assumed • SSE has 400MW of run-of-river hydro, 750MW of flexible hydro alongside 300MW of pumped storage. cumulatively over 10 that by providing more flexible hydro output from existing assets SSE could • In 2017/18 and 2018/19, and despite challenging weather conditions SSE’s hydro fleet delivered years. As the energy system decarbonises, an increasing volume generate an additional £15m per annum through generating additional volumes increased value from their increased flexibility, enabled by enhancements to SSE’s commercial of wind energy is coming onto the GB system. Flexible and/or capturing high prices during system stress periods. Further, balancing management of these assets. generation and storage are required to provide electricity market revenue could generate an additional income of up to around £8m a when wind output is low. SSE’s hydro generation assets (inc. year. These values will vary depending on power prices which are uncertain. pumped storage) are in a good position to take advantage of an increase in value of flexible output. Furthermore, the successful development of the consented Coire Glas Pumped Hydro plant could potentially earn additional revenue between 2025 and 2030. This is based on the current revenue projections for the existing pump storage capacity that SSE owns.

Up to £400m increase in revenue by providing flexible hydro output and investing in new pumped storage output over the next 10 years. Quick read Introduction Regulatory and market Investor expectations Appendix A – questions Appendix B – examples Appendix C – participants Appendix D – regulatory Decarbonisation of transport presents opportunities The uptake of EVs on SSE’s networks is likely to 1provide a significant investment 2• SSEN is taking a leadership role on3 electrification and has a 2030 target 4to ‘build network flexibility that Between5 £200m to for SSE’s Networks business. opportunity overviewto support the low carbon transport transition.and company Studies forecast views that andhelps recommended accommodate 10 million electricof vehiclesdeveloping in the UK’,practice and during 2018/19,and SSEN process invested a total £400mand cumulative market initiatives EVs will contribute to between £400m to £1bn of capital investment by 2030 for disclosuresof £370.7m in electricity distribution networks. revenue from investment National Grid’s ‘Two Degree’ Future Energy Scenario 2018 SSE in its network areas. To calculate the revenue impact of rapid electrification • SSEN continues to progress innovation through Ofgem funded structures, and in March 2019 to support electrification anticipated electric vehicles (EVs) to grow in GB to around of vehicles, SSE has profiled the investment predictions of a fast and average secured £13.8m of funding for Project Local Energy Oxfordshire (LEO) to explore the growth in local of transport to 2030. 10 million by 2030. uptake over the period up to 2030. renewables, electric vehicles, battery storage, vehicle-to-grid (V2G) technology and demand side response. Between £200m and £400m potential increase in cumulative revenue from investment in networks to support electrification of transport up to 2030.

24 SSE plc Sustainability Report 2019 SSE plc Sustainability Report 2019 25 3.2 2020-2030

In 2009, in light of the UK's Climate Change Act 2008, SSE set itself a clear and simple target to halve the carbon intensity of its electricity generation from 2006 data by 2020. This target could be set with reasonable confidence because the framework for remunerating renewable energy, particularly through the ROC regime, was clear. The increase in renewable generation output and capacity are clearly demonstrated in Graphs 1 and 2. In addition, the importance of reliable, flexible gas-fired generation, partly due to varying weather conditions leading to lower renewable output, can be seen in SSE generation output in 2016/17.

The level of policy certainty is not as clear through the 2020s. Nevertheless, SSE strongly believes the country requires the continued expansion of its lower carbon energy generation capability and SSE has a pipeline of potential projects it could deliver in order to support any UK wide ambition. All projects are subject to varying degrees of further development and final investment decisions and would require the right economic conditions to progress. For example, the offshore projects will require some sort of incentive such as a Contract for Difference (CfD) which is yet to be agreed. SSE’s pipeline of potential GB generation developments includes the projects outlined in Table 3.

Table 3: Pipeline of potential SSE Generation projects in GB

Project Technology Total Status SSE Expected ownership (%) Capacity (MW) Dogger Bank Offshore wind Up to 4,800 Consents for 2 phases gained with a 37.5 total of 4 x 1,200MW projects. Firth of Forth/ Offshore wind Phase 1 up to In appeal for two projects up to 525MW 50 Seagreen 1,050 each. Abernedd Gas-fired power 870 870MW CCGT consented, with 100 station application being processed to enable Climate-related corporate reporting either a 870MW CCGT or a 299MW OCGT to be deployed at Abernedd. 43 Keadby Power Gas-fired power 820 Consented. 100 station (2) station 3.2Coire 2020-2030 Glas Pumped storage Up to 600 Consented. 100 SSE plc InViking 2009, in light of theOnshore UK's Climate wind Change Up to Act370 2008, SSE Consented. set itself a clear and simple target to halve50 the carbon Post-Paris: Understanding SSE’s long term resilience intensity of its electricity generation from 2006 data by 2020. This target could be set with reasonable confidence Strathy South Onshore wind Up to 133 Awaiting consent decision from Scottish 100 because the framework for remunerating renewable energy, particularly through the ROC regime, was clear. The Government following public enquiry in against different carbon reduction scenarios following increase in renewable generation output and capacity are clearly demonstrated in Graphs 1 and 2. In addition, 2015. 2017 the importance of reliable, flexible gas-fired generation, partly due to varying weather conditions leading to lower the Paris Agreement renewableHadyard Hill output, canOnshore be seen wind in SSE generation Up to 88 output Currently in 2016/17. in planning regime. 100 p9 Extension TheGordonbush level of policy certaintyOnshore iswind not as clear Up to through56 the Awaiting 2020s. consent Nevertheless, decision SSE from strongly Scottish believes 100 the country 3.2requiresExtension 2020-2030 the continued expansion of its lower carbon energyGovernment. generation capability and SSE has a pipeline of potential projectsTangy III it could deliverOnshore in order wind to support Up to any 34.5 UK wide Consented. ambition. All projects are subject to varying100 degrees of furtherIn 2009, development in light of the and UK's final Climate investment Change decisions Act 2008, and SSE would set itselfrequire a clear the rightand simpleeconomic target conditions to halve tothe progress.carbon ForintensitySlough example, Multifuelof its the electricity offshoreMultifuel generation projects fromwill require 50 2006 somedata bysort 2020.Consented. of incentive This target such could as a beContract set with for reasonable Difference100 confidence (CfD) which isbecause yet to be the agreed. framework SSE’s forpipeline remunerating of potential renewable GB generation energy, developments particularly through includes the the ROC projects regime, outlined was clear.in Table The 3. increase in renewable generation output and capacity are clearly demonstrated in Graphs 1 and 2. In addition, ThisTablethe importance pipeline 3: Pipeline is aof deliberate reliable,of potential flexible mix of SSE renewablegas-fired Generation projectsgeneration, projects of varyingpartly in GBdue scale: to varyingfrom the weather strategically conditions significant leading offshoreto lower windrenewable projects output, like Dogger can be Bankseen toin SSEthe incrementalgeneration output development in 2016/17. of existing onshore wind sites. Project Technology Total Status SSE ThereThe level is also of the policy opportunity certainty to is extend not as the clearExpected life through of existing the onshore 2020s. and Nevertheless, hydro sites SSEor repower strongly them believes completelyownership the country with(%) newrequires turbines the continued which could expansion increase of theirits lowerCapacity capacity carbon and energy output. generation capability and SSE has a pipeline of potential projects it could deliver in order to support(MW) any UK wide ambition. All projects are subject to varying degrees of further development and final investment decisions and would require the right economic conditions to progress. BasedDogger on Bank the premiseOffshore that as GB’s wind reliance Up onto intermittent4,800 Consents wind energy for 2 grows,phases thegained requirement with a for37.5 highly efficient For example, the offshore projects will require some sort of incentive such as a Contract for Difference (CfD) which and flexible generation also grows. Therefore this pipelinetotal is balanced,of 4 x 1,200MW including projects. both new gas-fired generation and 6.0 Conclusion: SSE’s business model is resilient and can respond ais potentialyet to be agreed.new, large SSE’s scale, pipeline pumped of potential storage GBasset generation in the north developments of Scotland. includes the projects outlined in Table 3. Firth of Forth/ Offshore wind Phase 1 up to In appeal for two projects up to 525MW 50 to opportunities TableSeagreen 3: Pipeline of potential SSE Generation1,050 projectseach. in GB Abernedd Gas-fired power 870 870MW CCGT consented, with 100 The objective of this report is to assess the resilience of SSE’s existing business model to three core scenarios: a Project stationTechnology Total applicationStatus9 being processed to enable SSE scenario where GB contributes its share of carbon reduction to global temperature rises of 2°C; a scenario where it Expected either a 870MW CCGT or a 299MW ownership (%) contributes to a 1.5°C scenario; a business as usual scenario where emissions would be in line with a 3-4°C warming Capacity OCGT to be deployed at Abernedd. scenario; and for each scenario a further sensitivity test of a low nuclear alternative. The report shows the likely (MW) events that could take place if each scenario plays out and how SSE could respond to these scenarios. Keadby Power Gas-fired power 820 Consented. 100 stationDogger (2) Bank stationOffshore wind Up to 4,800 Consents for 2 phases gained with a 37.5 total of 4 x 1,200MW projects. The sensitivity analysis finds that SSE’s current mix of economically regulated and market based businesses are Coire Glas Pumped storage Up to 600 Consented. 100 important to ensure that GB transitions to a low carbon electricity system. It is also shown that in circumstances Firth of Forth/ Offshore wind Phase 1 up to In appeal for two projects up to 525MW 50 whereby the transition does not follow the path detailed by UNFCCC or the Climate Change Act then SSE is also in Seagreen 1,050 each. Viking Onshore wind Up to 370 Consented. 50 a strong position to respond. Abernedd Gas-fired power 870 870MW CCGT consented, with 100 Strathy South Onshorestation wind Up to 133 Awaitingapplication consent being processeddecision from to enable Scottish 100 SSE’s existing business model stands up well to each of these core scenarios as the combination and balanced mix Governmenteither a 870MW following CCGT orpublic a 299MW enquiry in of distribution, transmission and generation assets are vital to the GB electricity system over the long term in each 2015.OCGT to be deployed at Abernedd. of the scenarios. In short, SSE’s business model is resilient. HadyardKeadby Power Hill OnshoreGas-fired wind power Up820 to 88 CurrentlyConsented. in planning regime. 100 Extensionstation (2) station In addition, the optionality SSE has within its development pipeline puts it in an advantageous place to respond to new opportunities climate change mitigation might bring. There could be evolving and new opportunities to invest Gordonbush Onshore wind Up to 56 Awaiting consent decision from Scottish 100 Coire Glas Pumped storage Up to 600 Consented. 100 in renewable sources of energy, in the provision of flexibility for the electricity system, the electrification of transport, Extension Government. the decarbonisation of heat – and in the role of the transmission network in supporting this. TangyViking III Onshore wind Up to 34.5370 Consented. 10050 The analysis identifies that SSE’s business model should be well placed to respond to these and other opportunities Slough Multifuel Multifuel 50 Consented. 100 Strathy South Onshore wind Up to 133 Awaiting consent decision from Scottish 100 in a low carbon economy; nevertheless, challenges do exist. For instance, it would be significantly more challenging Government following public enquiry in to build out the pipeline of new renewable assets in a No Progress scenario if the combination of policy framework 2015. and economic conditions do not support it. It is therefore important that SSE continues to monitor these issues, This pipeline is a deliberate mix of renewable projects of varying scale: from the strategically significant offshore Hadyard Hill Onshore wind Up to 88 Currently in planning regime. 100 stays agile, maintains resilience and is a progressive contributor to public policy development – all in pursuit of wind projects like Dogger Bank to the incremental development of existing onshore wind sites. Extension maintaining and building value for the future, in the interests of energy customers and investors alike. Gordonbush Onshore wind Up to 56 Awaiting consent decision from Scottish 100 There is also the opportunity to extend the life of existing onshore and hydro sites or repower them completely with SSE has long argued that the existence of a carbon price that properly and accurately reflects the true cost of carbon Extension Government. new turbines which could increase their capacity and output. should be at the heart of frameworks to deliver a secure, low carbon electricity system. SSE will therefore continue Tangy III Onshore wind Up to 34.5 Consented. 100 to work with investors and other stakeholders to make the case for enhanced policy and market signals that will Based on the premise that as GB’s reliance on intermittent wind energy grows, the requirement for highly efficient create an economic environment for the most cost effective transition to a secure, low carbon electricity system in Slough Multifuel Multifuel 50 Consented. 100 and flexible generation also grows. Therefore this pipeline is balanced, including both new gas-fired generation and GB. a potential new, large scale, pumped storage asset in the north of Scotland. The important conclusion from this review is that SSE’s existing, resilient, portfolio of assets can respond to the various This pipeline is a deliberate mix of renewable projects of varying scale: from the strategically significant offshore scenarios assessed; and its diverse range of future development options provide many potential opportunities for wind projects like Dogger Bank to the incremental development of existing onshore wind sites. the future. Quick read Introduction 9 Regulatory and market 1 Investor expectations 2 Appendix A – questions 3 Appendix B – examples 4 Appendix C – participants 5 Appendix D – regulatory There is also the opportunity to extend the life of existing onshoreoverview and hydro sites or repower them andcompletely company with views and recommended of developing practice and process and market initiatives new turbines which could increase their capacity and output. disclosures Based on the premise that as GB’s reliance on intermittent wind energy grows, the requirement for highly efficient and flexible generation also grows. Therefore this pipeline is balanced, including both new gas-fired generation and a potential new, large scale, pumped storage asset in the north of Scotland.

17 STRATEGIC REPORT

STRATEGIC REPORT

Strategy in action SSE’s vision is to be a leading energy company in a low-carbon world.Strategy Its purpose in action is to provide the energy needed today while building a better world of energy for tomorrow. And its strategy is to create value for shareholders and society from developing, operating and owning energy and related infrastructure in a sustainable way. ThisPERFORMANCE strategy, which is underpinned by a commitment to strong financial management, is builtPERFORMANCE on four pillars . AGAINST OUR STRATEGY STRATEGIC PILLAR #3 STRATEGIC PILLAR #4 SSE uses a number of Progress during the year energy networks and in its capacity for STRATEGIC REPORT In 2018/19, SSE’s financial results were generating renewable electricity. SSEfinancial uses anda number non-financial of Progress during the year energy networks and in its capacity for materially affected by the unexpected In 2018/19, SSE’s financial results were generating renewable electricity. financialmeasures and to tracknon-financial progress adjusted operating loss in relation to its In operational terms, SSE secured a 20% materially affected by the unexpected Energy Portfolio Management activities. reduction in the Total Recordable Injury measuresagainst its tostrategy track progressto create adjusted operating loss in relation to its In operational terms, SSE secured a 20% CreatingOur role in society continued Being requestingThis was disappointing that companies and disclose regrettable. more RateIn 2018/19, and reduced coal-fired the generationcarbon intensity contributed Energy Portfolio Management activities. reduction in the Total Recordable Injury Advocating for carbon pricing againstvalue from its strategy developing, to create meaningful climate-related information. ofjust the 2%, electricity renewable it generatedgeneration by (inc. 7%. pumped In November 2018, SSE joined other leading This was disappointing and regrettable. Rate and reduced the carbon intensity value sustainable Nevertheless, SSE delivered a full-year storage) 32% and gas- and oil-fired generation businesses in writing to the Prime Minister to valueoperating from and developing, owning of the electricity it generated by 7%. Towardsdividend of full97.5 penceTCFD per disclosure share; and made An66% important of SSE’s total part generationof Executive output Directors’ call for the adoption of a Net Zero emissions Climate-related corporate reporting Nevertheless, SSE delivered a full-year A strategy of developing, operating and owning A sustainable company is one thatoperatingenergy-related offers profitable and owning assets Ingood November progress 2017, in its SSE programme committed of to capital meeting remuneration(compared to 4%,relates 28% to and SSE’s 66% financial respectively and in target by 2050. In addition, in his role as SSE’s vision is to be a leading energy company in a low-carbon world. Its purpose is to dividend of 97.5 pence per share; and made 44An important part of Executive Directors’ c creates value for shareholders. A dividend commitment solutions to the world’s problems. In support of its vision, theand Task investment Force on expenditure Climate-related in support Financial of non-financial2017/18). In 2018/19, performance, SSE began and construction the impact Vice President of industry body Eurelectric, energy-relatedand businesses. assets good progress in its programme of capital remuneration relates to SSE’s financial and provide the energy needed today while buildingbuilt on world-classa better assets, world growth of optionsenergy and forthe skills tomorrow. purpose and strategy, SSE has adopted four fundamental future value creation. This is already reflected of this is set out in the Remuneration Report Disclosuresand investment (TCFD) expenditure recommendations in support in of full non-financialof its new Combined performance, Cycle Gasand Turbinethe impact SSE’s Chief Executive Alistair Phillips-Davies

and experience SSE has in low-carbon technologies fairly business goals for 2030 which areand directly businesses. aligned to the byin theMarch Regulatory 2021. These Asset recommendations Value (RAV) of its on(CCGT) page power 116  .station Keadby 2, in North launched a new study that demonstrates how

And its strategy is to create value for shareholders and society from developing, operating future value creation. This is already reflected of this is set out in the Remuneration Report

16 remunerates shareholders for their continued investment. SSEUnited plc AnnualNations’ Report Sustainable 2019 Development Goals. encouragein the Regulatory businesses Asset to Value increase (RAV) disclosure of its onLincolnshire, page 116 which. will be the most efficient the European power sector can become fully and owning energy and related infrastructureAs was in seena sustainable in 2018/19, successful way. transactions This strategy, can also which is of climate-related information, with an thermal power station on the UK power carbon neutral by 2045 through investment in STRATEGIC REPORT

create substantial value to finance further investment for Through its goals, the UN has created a blueprint for a emphasis on financial disclosure. system when completed in early 2022. renewable energy and electricity networks.

underpinned by a commitment to strong financial management, is built on four pillars .by 2020/21 since 2017/18. Economic contribution in UK/Ireland Taxes paid in the UK/Ireland Renewable output (inc. pumped storage)

in achieving its target of halving its TRIR growth and discretionary share buybacks, or contribute to sustainable world – and it is oneits that carbon SSE intensity is putting by 2030. at the

SSE has made progress towards meeting (GWh) SSE also continued to promote a strong

performance making significant progress 4,080 jobs respectively. contributingEconomic contribution to the company’s in UK/Ireland target to halve Taxes paid in the UK/Ireland Renewable output (inc. pumped storage)

the management of net debt. forefront of its business, with a strategy that is geared to these recommendations by improving the Renewable generation output carbon price by advocating to the Chancellor Performance: 2018/19 is SSE’s best ever safety UK and Ireland, SSE supports 101,170 and electricity2019 generated reduced by 7% last year, 2019 (GWh)2019

delivering decarbonisation and to enabling the Group to £8.9bn £404m (inc. pumped storage) (GWh) 9,779 Performance: Across its operations in the The carbon intensity of the Our role in society continued STRATEGIC REPORT Performance: quality of climate-related information in this along with other power companies ahead

The same strategy also creates real, lasting value for society. we don’t do it”.realise its vision of being a leading2019 energy689m company in a 2019Strategic14.6m Report and by responding to CDP’s 2019 of the Budget in November 2018, calling for operates to the safety licence of “if it’s not safe, supporting jobs in both urban and rural areas.

its carbon intensity in line with climate science.£8.9bn £404m 2018 9,779 9,779 one core value, and everybody in the company work for it in order to operate, with its activities 2018/19: STRATEGIC PILLAR #3 SSE makesSTRATEGIC a significant contribution PILLAR #4 to the economies low-carbon world. of2018 electricity,689m SSE has a responsibility to reduce annual201814.6m Climate Change Programme, which 9,428 Government to keep the Total Carbon Price

2018 Strategic relevance: Safety is SSE’s number Strategic relevance: SSE relies on the people that As a significant generator CLIMATE CHANGE AND ENVIRONMENTStrategic relevance: it operates in by paying the right amount of tax, at the £8.6bn for the first time in 2018 addressed the £484mTCFD stable during the period of uncertainty around 2018 2018 20172017/18: 9,428 9,428 STRATEGIC REPORT 806m recommendations.22.6m Brexit and the UK’s future participation in the right time, in the right place. SSE also makes significant £8.6bn £484m 7,955

Strategy in action 2017

302 108,440 0.22 2017 806m 201722.6m EU ETS. SSE also supported carbon pricing

economic contribution to the countries in which it operates (2) To support the UK to decarbonise7,955 by 2017 2017 2017 £9.3bn £385m through submissions to consultations on

by sustainingCLIMATE and creating quality jobs, CHANGE paying fair wages, AND ENVIRONMENT2017 779m 201716.5m enabling more renewable generation to

Ireland’s National Energy and Climate Plan. 305 103,520 0.20 £9.3bn £385m

Creating A healthycommitting business to tax culture transparency, requires supporting careful indigenous connect to the electricity transmission

2018 2018 2018Strategy in action UK779m Ireland 16.5mUK Ireland

considerationsupply chains, at allprovidingSTRATEGIC levels of community the REPORT Company investment funds network the North of Scotland. In addition, SSE made the case for increased 284 105,250

value and delivering infrastructure to support the transition 0.16 UK Ireland UK Ireland 2019 2019

to the interestsWith of meetingthe people thewho challengerely of climate change2019 at the core of its businessStrategic strategy, relevance: SSE SSE depends on a healthy Strategic relevance: Taxes support the public Strategic relevance: Renewables are core to UK offshore wind ambition setting out the on toit. aIn low-carbon SSE’s 2018 Annualeconomy. Report we and thriving economy to enable its business services everyone relies on. When companies SSE’sSSE has business invested strategy over £2.7bnwhich is since centred 2013 around in proven ability of offshore wind to deliver

A strategy of developing, operating and owning Strategicsuccess, which relevance: is why SSE it calculates depends onthe a value healthy Strategicdo well, they relevance: should shareTaxes theirsupport success the public with Strategicthenew low-carbon electricity relevance: transmissiontransition. Renewables infrastructure are core to and seeks to develop, operate and own assetscombined)PERFORMANCE that create lasting value and support the clean power cost effectively at a time when

creates value for shareholders. A dividend commitment described in great detailOur role the interactionsin society continued andit adds thriving to UK economy and Irish GDPto enable each itsyear. business servicessociety through everyone the relies payment on. When of taxes. companies SSE’s business strategy which is centred around

2 Performance:has a total planned 2018/19 investment was a record of over year £600m (gCO hours worked (employees and contractors success,e per which kWh) is why it calculates the value do well, they should share their success with the low-carbon transition. new nuclear is facing challenges. SSE has

built on world-class assets, growth options and the skills between thelow-carbon Group and its transition.many and varied To allow stakeholders to properly assess SSE’s performancePerformance: SSE hasin added a total of £75.4bn Performance: Total taxes paid reduced forby theSSE endRenewables, of the current with output transmission increasing price Carbon intensity of electricity generated Jobs supported in UK and Ireland Total recordable injury rate per 100,000 it adds to UK and Irish GDP each year. society through the payment of taxes. been a vocal advocate for the development stakeholders. This has been enhanced in and €6.8bn (in 2018/19 prices) of value to the significantly in 2018/19. This was driven by lower Performance:tocontrol 9,779GWh. period This2018/19 in 2021. was wasmainly This a investmentrecord driven year by an and experience SSE has in low-carbon technologies fairly managing climate-related issues, SSE aims to provide increasingly transparentPerformance: disclosures. SSE has added a total of £75.4bn Performance: Total taxes paid reduced for SSE Renewables, with output increasing of offshore wind in Ireland, and particularly

this year’s Strategic Report (pages 2 to 71 PERFORMANCEUK and Irish economies since 2011/12. profits earned yet capital allowances received increaseis increasing in average the capacity generation of the capacity network, as remunerates shareholders for their continued investment. AGAINST OURand €6.8bn (in 2018/19 prices) STRATEGY of value to the significantly in 2018/19. This was driven by lower to 9,779GWh. This was mainly driven by an for support of this technology through

as a result of significant ongoing investment. Stronelairg and Beatrice began to operate. Stronelairg and Beatrice began to operate.

As was seen in 2018/19, successful transactions can also ) and the Governance Report sets out asUK a and result Irish of economiessignificant ongoing since 2011/12. investment. profits earned yet capital allowances received increaseallowing in the average renewable generation energy capacity generated as in Ireland’s upcoming Renewable Electricity UK and Irish economies since 2011/12. increase in average generation capacity as

Performance summary profits earned yet capital allowances received as a result of significant ongoing investment. Stronelairgthe North ofand Scotland Beatrice to began be transported to operate. south Support Scheme. and €6.8bn (in 2018/19 prices) of value to the to 9,779GWh. This was mainly driven by an create substantial value to finance further investment for the considerations taken by the Board of significantly in 2018/19. This was driven by lower

Delivering the five-year dividend plan SSE uses a number of ProgressTotal recordable during injury the rate year per 100,000 energyCarbon networks intensity andof electricity in its capacity generated for Jobsto areas supported of higher in demand. UK and InIreland doing this, SSE’s Performance: SSE has added a total of £75.4bn for SSE Renewables, with output increasing Total taxes paid reduced

stakeholder interests when making strategic Relevant policiesPerformance:

growth and discretionary share buybacks, or contribute to Unit 2018/19 2017/18 Inhours 2018/19, worked SSE’s (employees financial results and contractors were generating(gCO e per renewable kWh) electricity. 2018/19 was a record year

AGAINST OUR STRATEGYPerformance: transmission network is playing a key role in financial and non-financialand documents 2 it adds to UK and Irish GDP each year. Likely to be at least c.£4.25 societyTotal recordable through the injury payment rate of per taxes. 100,000 Strategy Jobs supported in UK and Ireland

the management of net debt. decisions. ForTotal SSE, carbon this emissions isDividend about per1 good share pence Million tonnes 18.83 (A) 21.70 materiallycombined) affected by the unexpected supporting the UK to achieve its carbon targets. success, which is why it calculates the value the low-carbon transition. CLIMATE CHANGE AND ENVIRONMENT–Environmentdo well, and theyClimate should Change share their success with

adjustedhours worked operating (employees loss in relation and contractors to its In operational terms, SSE secured a 20% Risk management

corporate citizenship rather than compliance, CO94.7 97.5*e measures to track progress Supporting the low-carbon and thriving economy to enable its business SSE’s business strategy which is centred around 91.3 2 Policy services everyone relies on. When companies In 2018/19, around 1GW of new renewable

86.7 88.4 89.4 +RPI combined)

84.2 +RPI +RPI SSE uses a number of EnergyProgress Portfolio during Management the year activities. reductionenergy networks in the Total and inRecordable its capacity Injury for Strategic relevance: SSE depends on a healthy Strategic relevance: Renewables are core to Taxes support the public 80.1 80.0* (A) Strategic2019 relevance: transition 2019 Managing climate-related risks The same strategy also creates real, lasting value for society. and we aimIntensity to be consistent ratio: electricity with 75.0generation Section 172 gCO e per kWh against284 its strategy305 to create–GHG, carbon intensity and water generation capacity was connected, bringing 70.0 2 In 2018/19, SSE’s financial results were generating renewable electricity. 66.0 This was disappointing and0.16 regrettable. RateDecarbonisation and reduced represents the carbon a intensitysignificant 105,250 and low-carbon opportunities SSE makes a significant contribution to the economies of the Companiesemissions Act relative 2006,60.5 to outputwhich2 imposes financial and non-financialassurance statement the total to over 6GW, up from around 3.3GW

55.0 value from developing, materially2019 affected by the unexpected of2019 the electricity it generated by 7%. 2019 Ireland UK Ireland 46.5 UK opportunity for SSE’s businesses. SSE’s While climate change, and the imperative to it operates in by paying the right amount of tax, at the on DirectorsWith the duty42.5meeting to promote the the challenge success of climate change at the core of its–G businessreen Bond2018 assurancestrategy, statement SSE 0.16 284 2018in 2013. 105,250 Total35.0 37.7renewable generation output AGWh socially responsiblemeasures9,779 to strategy track 9,428 progress adjusted operating loss in relation to its In operational terms, SSE secured a 20%

30.0 32.4 Nevertheless, SSE delivered a full-year0.20 renewables portfolio and electricity 103,520 decarbonise energy systems, provides SSE

25.7 27.5 operating and owning and framework

779m 16.5m right time, in the right place. SSE also makes significant of the company.(inc. pumped Section storage) 172 is just one of the The culture of doing the right thing that I Energy2018 Portfolio Management activities. reduction2018 in the Total Recordable Injury 2018

seeks to develop, operate and own assetsagainst that createits strategy lasting to value create–C DPand Climate supportdividend Change of 97.5 submissionthe pence per share; and made Annetworks important provide part theof Executive core infrastructure Directors’ with its commercial opportunities it creates £385m Climate action: Reduce the carbon intensity of £9.3bn 2017 0.20 305 2017Green finance 103,520

economic contribution to the countries in which it operates many regulatoryTotal generation responsibilities output the Board is haveGWh describedenergy-related above30,835 underpins a33,098 strategy assets goodThis was progress disappointing in its programme and regrettable. of capital remunerationRateto support and reduced the relates transition the to carbon SSE’s to a low-carbonfinancialintensity and business risks too. SSE identifies and evaluates 2017 FY99 low-carbon FY09FY08FY07FY06FY05FY04FY03FY02FY01FY00 transition.FY10 FY11 FY13FY12 FY14 ToFY15 FY16 allowFY19FY18FY17 stakeholdersFY20e FY21e FY22eFY23e 2017 to properly assess–C SSE’sDP Water performance submission in 0.22 As part of SSE’s strategy for supporting108,440 a

electricity generated by 50% by 2030, comparedvalue from developing, of the electricity it generated by 7%.

by sustaining and creating quality jobs, paying fair wages, Forecast and2017 investment expenditure in support of non-financial2017 performance, and the impact 2017

cogniscant of. of creating value for not just shareholders, energy system, complemented7,955 by thermal risk at both Group and divisional (including

Total water consumed Million m3 and businesses.5.6 (A) 7.6 (A) –Annual Biodiversity Report low-carbon economy, it is using financial 806m 22.6m

managing climate-related issues, SSE aims to provide increasingly transparentNevertheless, disclosures. SSE delivered a full-year0.22 302 108,440

committing to tax transparency, supporting indigenous to 2018 levels, to around 150g/kWh.but for society operatingmore widely, fromand developing, owning –Post-Parisfuture climate value change creation. This is already reflected 2017ofplant this that is set provides out in the vital Remuneration flexibility, offsetting Report assets) level. The Group Risk Management £484m £8.6bn markets as a progressive agent for change

dividendStrategic of relevance: 97.5 pence Safety per is share; SSE’s numberand made An important part of Executive Directors’ Strategic relevance: SSE relies on the people that

Dividend sustainability on quality and nature of operations, assets and on long-term ﬁnancial outlook scenario reportin the Regulatory Asset Value (RAV) of its onthe page variability 116  of. renewables output. Framework has been designed to ensure, 2018 2018 supply chains, providing community investment funds Our* 2019 commitment – recommended; to Section 172 operating and owning energy and related one core value, and everybody in the company 9,428 workand climatefor it in orderaction. to operate,In September with its 2018, activities

1 GHG emissions from SGN’s activities are excluded (SGN reports these separately).energy-related GHG emissions assets goodStrategic progress relevance: in its Safety programme is SSE’s ofnumber capital remunerationStrategic relevance: relates As to a significantSSE’s financial generator and Strategic relevance: SSE relies on the people that

operates to the safety licence of “if it’s not safe, 2018 supporting jobs in both urban and rural areas. amongst other things, SSE is in a position to

and delivering infrastructure to support the transition 2020 – intendfrom to other recommend. Joint Ventures are also excluded. For more detail see SSE’s GHG Reporting Criteria at SSE issued its second Green Bond of €650m. 689m 14.6m SSE looks after assets that were built from infrastructure and services in a sustainable way. andone coreinvestment value, and expenditure everybody in in support the company of non-financialof electricity, SSE performance, has a responsibility and the to impact reduce work for it in order to operate, with its activities

 For more informationwe don’t dosee it”. the To realise these opportunities and contribute Performance: Across its operations in the address the issue of climate change, whether £404m 9,779 to a low-carbon economy. sse.com/sustainabilityAffordable. and clean energy: Develop andand build businesses. £8.9bn operates to the safety licence of “if it’s not safe, its carbon intensity in line with climate science. supportingThis, in addition jobs in toboth the urban company’s and rural inaugural areas.

the 1950s and we haveWith developed meeting the and challenge are of climate change at the core of its businessSustainability strategy,future Report SSE value 2019 creation.  This is already reflected of this is set out in the Remuneration Report 2019 2019 2 SSE’s 2030 carbon intensity target is based on generation emissions only.2019 To track progress against this target, Performance: 2018/19 is SSE’s best ever safety significantly to the transition to low-carbon UK and Ireland, SSE supports 101,170 and as a risk or as an opportunity. This framework

by 2030 enough renewable energy to treble we don’t do it”. Performance: The carbon intensity of the Performance:€600m Green Across Bond its issued operations in September in the

developing assetsprevious thatseeks years’ will intensity to be develop, operationalratios have beenoperate restatedin and toSSE only ownhas cover an electricity assets enviableEconomic generation that portfolio create contributionemissions lastingof rather renewable inthan valueUK/Ireland andand support sse.com/sustainabilityTaxesinperformance thethe paidRegulatory in makingthe. UK/IrelandAsset significant Value (RAV) progress of its Renewableonelectricity page 116 systems output. in(inc. the pumped UK and Ireland,storage) 4,080 jobs respectively. is outlined on pages 110 and 111 .

(GW renewable output to 30TWh a year. Performance: 2018/19 is SSE’s best ever safety electricityh) generated reduced by 7% last year, UK2017, and means Ireland, SSE SSE is supports the largest 101,170 issuer and of Green

the 2050s. Decision-makingtotal scopelow-carbon 1 emissions. requires transition. a long- To allowenergy stakeholders assets, a valuable to properly pipeline assess of future SSE’s performancein achieving in its target of halving its TRIR (GWh)SSE’s approach has been two-pronged: Taxes paid in the UK/Ireland Renewable output (inc. pumped storage) Economic contribution in UK/Ireland performanceby 2020/21 since making 2017/18. significant progress contributing to the company’s target to halve 4,080Bonds jobs in the respectively. UK corporate sector. term perspective, andmanaging this is typified climate-related by our issues,projects SSE and aims ambitions2019 to provide to develop increasingly much transparent 2019disclosures.in achieving its target of halving its TRIR 2019its carbon intensity by 2030. Addressing climate change requires sustainable development ambitions for 2030. more renewable energy capacity over £8.9bn by 2020/21 since 2017/18. £404m (1) To reduce the carbon intensity of 9,779 SSE also refinanced its £1.3bn Revolving adaptation as well as mitigation, as reflected The imperativeIndustry, to innovationdecarbonise and infrastructureunprecedented: BuildEconomic levels689m of changecontribution are needed in UK/Irelandof how Net ZeroTaxes would14.6m paid be achieved.in the UK/Ireland SSE its own operations through a strategic in SSE’s approach to risk management. SustainableSee page success 6 . is dependent on the the next decade. RenewablesSee page capacity 24  is. 16 SSE plc Annual Report 2019 2018 Credit Facility (RCF) in March 2019 linked

SSE recognisesPerformance the serious summary risk that climate in a much shorter2018 timeframe to limit global firmly supports 2018the UK adopting a Net Zero shift towards a less fossil fuel intensive9,428 Climate change and its impacts are in the Regulatory Asset Value (RAV) of its . electricity network flexibility and infrastructure on page 116  to sustainability criteria. The RCF now

skills, talentchange and values poses toof society employees, and to its and business. Itcomplementedtemperature increases by our to flexible within 1.5˚C thermal or 2˚C.Relevantemissions policies target for 2050 at the latest. The

Delivering the five-year dividend plan Unit 2019 2018/19 2017/18 £8.6bn 201916 SSE plc Annual Report 2019 £484m generation portfolio. considered throughout SSE’s Group Principal

future value creation. This is already reflected Remuneration Report that helps accommodate 10m electric vehicles806m and documents 22.6m 2017of this is set out in the incorporates an innovative feature,

as you can alsosee recogniseson pages that 32 theto need35 to, SSE decarbonise is power stations,and which businesses. have an important UK Government£8.9bn will decide in the course £404m

Total carbon emissions 1 Million tonnes 18.83 (A) 21.70 7,955 Risks (see pages 66 to 71 ). and investment expenditure in support of

Likely to be at least c.£4.25 in GB by 2030. 689m –Environment and Climate14.6m Change non-financial performance, and the impact which adjusts the interest rate and fees

Dividend per share pence presents significant opportunities in At the same time, there have been growing of 2019 if further legislation is required.

committed to being a responsible employer. roleCO 2toe play in a2017 smooth transition to Policy 2017 SSE has invested over £3.8bn in renewables energy-related assets good progress in its programme of capital supporting the UK and Ireland transition calls for the UK to stretch its ambitions, remuneration relates to SSE’s financial and paid depending on SSE’s performance

97.5* 2018 (A) –GHG, carbon£9.3bn intensity2018 and water £385m

94.7 Intensity ratio: electricity generation completegCO2e per kWh decarbonisation284 by offsetting305 since 2010. With the delivery of the 588MW In line with its approach to help stakeholders dividend of 97.5 pence per share; and made

89.4 91.3 SSE plc Annual Report 2019 03 An important part of Executive Directors’ against an ESG (environmental, social

86.7 88.4 +RPI +RPI to low-carbon electricity systems.2 currently set as an 80%779m cut in emissions This£8.6bn growing sense16.5m of urgency around the £484m 84.2 operating and owningassurance statement

80.1 80.0*+RPI emissionsDecent relative work to output and economic growth: Be Beatrice offshore wind farm (SSE share: 40%) properly assess performance, SSE has

75.0 A values-based code of ethical business renewables output variability. Electricity Nevertheless, SSE delivered a full-year and governance) score determined by 70.0 806m –Green Bond assurance statement22.6m

66.0 by 2050. This movement towards a “Net need to tackle climate change has piqued

60.5 Totalthe renewable leading generation company output in the UKGWh and Ireland UK9,779 9,428 Ireland UK Ireland in May 2019, SSE currently has the largest increased transparency of how it is managing value from developing, conduct takes account of all of SSE’s networks, meanwhile, are critical enablersand framework of the electricity it generated by 7%. Vigeo Eiris, an independent global provider

55.0 The International(inc. pumped Panel storage) on Climate Change’s Zero” emissions2017 target reflects the scientific stakeholder interest2017 in the action SSE is taking

46.5 championing Fair Tax and a real Living Wage. –CDP Climate Change submission renewable energy capacity across the UK its most material climate-related risks This was disappointing and regrettable.

42.5 Rate and reduced the carbon intensity of ESG research. SSE is one of the first UK 37.7 stakeholders,(IPCC) and landmark the need report to fosterreleased in October of aanalysis low-carbon of the available economy. window Our for distribution action, to manage£9.3bn climate-related issues, not least in £385m

32.4 35.0 Total generation output GWh against30,835 its strategy33,098 to create

27.5 30.0 Strategic relevance: SSE depends–C onDP a Water healthy submission Strategic relevance: Taxes support the public and Ireland at around 4GW (inc. pumped and low-carbon opportunities, through Energy Portfolio Management activities.

25.7 2018, unlike studies before it, estimated that at the same time as779m a greater understanding the investor community16.5m who are increasingly reduction in the Total Recordable Injury corporates to convert to an ESG-linked RCF.

constructive and respectfulTotal water consumed relationships networksMillion m3 are centraland thriving5.6 to(A) the economy electrification7.6 to(A) enable–A its of nnualbusiness Biodiversity Reportservices everyone relies on. When companies storage), and has significant opportunities more detailed disclosure and analysis in its

measures to track progress adjusted operating loss in relation to its success, which is why it calculates–P theost-Paris value climate changedo well, they should share their success with In operational terms, SSE secured a 20%

FY99 FY09FY08FY07FY06FY05FY04FY03FY02FY01FY00 FY10 FY11 FY13FY12 FY14 FY15 FY16 FY19FY18FY17 FY20e FY21e FY22eFY23e with them. SSE’s “Doing the right thing” transport and accommodatingUK increasingIreland UK Ireland in onshore and offshore wind farm Sustainability Report 2019 .

it adds to UK and Irish GDP each year.scenario report materiallysociety through affected the paymentby the unexpected of taxes.

A healthy business culture Forecast guide (see page 941 G)HG helps emissions employees from SGN’s activities are excludednumbers (SGN reports theseof electric separately).financial GHG vehicles emissions and on thenon-financial system developments, with an 8GW pipeline. In 2018/19, SSE’s financial results were

from other Joint Ventures are also excluded. For more detail see SSE’s GHG Reporting Criteria at generating renewable electricity.

StrategicPerformance: relevance: SSE has SSE added depends a Fortotal onmore of a £75.4bn healthyinformation seeStrategicPerformance: the relevance: Total taxes Taxes paid support reduced the public Strategic relevance: Renewables are core to Progress during the year  SSE uses a number of An ethos of “doing the right thing” is at the faced with difficult ethicalsse.com/sustainability judgements.. It over the coming years offers the opportunity energy networks and in its capacity for and thriving€6.8bn (ineconomy 2018/19 to prices) enable of its value business to the servicessignificantly everyone in 2018/19. relies Thison. Whenwas driven companies by lower SSE’s business strategy which is centred around * Dividend2019 – sustainability recommended; on quality and nature of operations, assets and on long-term ﬁnancial outlook The imperative2 SSE’s 2030 carbonto decarbonise intensity target is based on generationunprecedented emissions only. To levels track progress of change against this are target, neededSustainabilityof how ReportNet Zero 2019 would be achieved. SSE

very heart of SSE’s ethical business culture recommends appropriateprevious years’steps intensity to preventratios have been restatedfor to only sustainable cover electricitysuccess,UK generationgrowth. and Irish emissionswhich The economies is rathertransmission why than it calculatessince 2011/12.and the sse.com/sustainability value doprofits well,. earned they should yet capital share allowances their success received with the low-carbon transition. SSE recognises the serious risk that climate in a much shorter timeframe to limit global firmly supports the UK adopting a Net Zero SSE plc Annual Report 2019 29 2020 – intendand to recommend.this is embodied in the vision, purpose issues growing into unsafetotal scope or 1 emissions. unfair decisions it adds to UK and Irish GDP each year. societyas a result through of significant the payment ongoing of taxes. investment. network, meanwhile,AGAINST will continue to expand OUR STRATEGY change poses to society and to its business. It temperature increases to within 1.5˚C or 2˚C. emissions target for 2050 at the latest. The Performance: 2018/19 was a record year Performance: SSE has added a total of £75.4bn Performance: Total taxes paid reduced for SSE Renewables, with output increasing and strategy set by the Board. This ethos is that have analso28 adverse recognises SSEimpact plcthatA thennual on need society Report to decarbonise 2019 or to connect renewable energy schemes to UK Government will decide in the course

Totaland €6.8bn recordable (in 2018/19 injury prices) rate perof value 100,000 to the Carbonsignificantly intensity in 2018/19. of electricity This was generateddriven by lower Jobsto 9,779GWh. supported This in was UK mainly and Ireland driven by an guided by the SSE SET of core values, which the environment.presents significantThe imperative opportunities to decarbonise in theAt unprecedentedGB the electricity same time,UK levels and theresystem of Irish change have economies and arebeen needed this growing sincetooof will 2011/12. how Netof 2019 Zero wouldif further be profitsachieved. legislation earned SSE is yetrequired. capital allowances received increase in average generation capacity as

SSE recognises the serious risk that climate in a much shorterhours timeframe worked to limit (employees global firmlyand contractorssupports the UK adopting(gCO a eNet per Zero kWh) are defined as Safety, Service, Efficiency, supporting the UK and Ireland transition createcalls significantfor the UK to opportunities.stretch its ambitions, as a result2 of significant ongoing investment. Stronelairg and Beatrice began to operate. change poses to society and to its business. It temperature increases to within 1.5˚C or 2˚C. emissions target for 2050 at the latest. The to low-carbon electricity systems. currently set asPERFORMANCEcombined) an 80% cut in emissions This growing sense of urgency around the Sustainability, Excellence and Teamwork. SSE aims to be a companyalso recognises in which that the needpeople to decarbonise UK Government will decide in the course by 2050. This movement towards a “Net need to tackle climate change has piqued Of these, Safety is regarded as SSE’s No 1 want to invest, frompresents which significant people opportunities want to in Developing,At the same time,operatingTotal there recordable have and been owning growing injury rate theseof per 2019 100,000 if further legislationCarbon is required. intensity of electricity generated Jobs supported in UK and Ireland The Internationalsupporting Panel the UK on and Climate Ireland transition Change’s Zero”calls foremissions the UK2019 to targetstretch reflectsits ambitions, the scientific stakeholder interest2019 in the action SSE is taking 2019 See page 6 . See page 24 . hours worked (employees0.16 and contractors (gCO e per kWh) 284 105,250 value, and good safety behaviour is heavily buy, with which(IPCC) people landmarkto low-carbon want report electricityto released partner systems. in and October assetsanalysiscurrently provides of set the as anavailable the 80% foundation cut windowin emissions for for action, theThis better growingto manage sense of climate-related urgency around2 the issues, not least in promoted and measured. While safety for which people2018, unlike want studies to work. before This it, estimatedrequires that worldatby the 2050.of same energy This time movement2018combined) that as a greaterwe towards strive understanding a “Net for. Weneed are to thetackle investor climate changecommunity2018 has piqued who are increasingly 2018 The International Panel on Climate Change’s Zero” emissions target reflects the scientific stakeholder0.20 interest in the action SSE is taking 305 103,520 performance improved markedly in 2018/19, the Board, Group Executive(IPCC) landmark Committee, report released in Octoberpart-wayanalysis throughof the available a capital window forand action, investmentto manage climate-related issues, not least in 2019 2019 2019 2018, unlike studies before it, estimated that at the same time2017 as a greater understanding the investor community who2017 are increasingly 2017

it continues to be monitored closely by the senior managers and other employees to spending programme of around £6bn0.16 for the 284 105,250

(A) PwC has provided limited assurance against ISAE 3000 (Revised) and ISAE 3410 standards for selected key data in 2018/19.0.22 Where you see the (A) “Assurance symbol” 302 108,440 Board given the inherent hazards faced by maintain an approach to strategic, financialSSE plc Annualfive Reportyears to2019 MarchStrategy 2023,03 giving in action an annual in this section, it indicates that the data point has been subject to external2018 assurance by PwC. For the limited assurance opinion and SSE’s2018 reporting criteria, see 2018 the electricity industry and the potential and operationalsse.com/sustainability/reporting-and-policy/ decision-making that is . average of £1.2bn across the period. But it0.20 305 103,520 (A) PwC has provided limited assurance against ISAE 3000 (Revised) and ISAE Strategic3410 standards relevance: for selected key Safety data in is 2018/19. SSE’s Where number you see the (A) “AssuranceStrategic symbol” relevance: As a significant generator Strategic relevance: SSE relies on the people that impact on people. More detail on SSE’s safety values-based and sustainablein this section, itin indicates approach, that the data point hasis been important subject to external to assurance note bythat PwC. recent For the limited transactions assurance opinion and SSE’s reporting criteria, see sse.com/sustainability/reporting-and-policy/ . 2017one core value, and everybody in the company 2017of electricity, SSE has a responsibility to reduce 2017work for it in order to operate, with its activities performance can be found on pages 16, 113 and therefore aligned to the requirements show SSE is notoperates fixed onto the asset safety ownership; licence of “if theit’s0.22 not safe, its carbon intensity in line with climate302 science. supporting jobs in both urban and rural areas.108,440

28 SSE plc Annual Report 2019 we don’t do it”. STRATEGIC REPORT Performance: The carbon intensity of the Performance: Across its operations in the and its approach to managing safety as one and expectations of28 SectionSSE 172. plc Annual Report 2019 development risk that SSE is able to manage of SSE’s Group Principal Risks can be found attracts a premiumStrategicPerformance: and, relevance: when 2018/19 theSafety is marketSSE’s is SSE’s best numberever safety Strategicelectricity relevance:generated Asreduced a significant by 7% lastgenerator year, StrategicUK and Ireland, relevance: SSE supports SSE relies 101,170 on the andpeople that oneperformance core value, making and everybody significant in progress the company ofcontributing electricity, to SSE the has company’s a responsibility target to halvereduce work4,080 for jobs it in respectively. order to operate, with its activities on page 71 . A key objective of this Strategic Report, is right, capital operatesinrecycling achieving to the itsis targetasafety key oflicencepart halving of of our its“if TRIRit’s not safe, its carbon intensity inby line2030. with climate science. supporting jobs in both urban and rural areas. by 2020/21 since 2017/18. the Directors’ Report and SSE’s separate strategy for growth.we don’t Likewise, do it”. full ownership Performance: The carbon intensity of the Performance: Across its operations in the Transparency is vital to a healthy culture, and Sustainability Report, and SSE’s associated is not seen as aPerformance: prerequisite 2018/19 for shareholder is SSE’s best ever safety electricity generated reduced by 7% last year, UK and Ireland, SSE supports 101,170 and I am proud that SSE continues to stand out commitment effective reporting, is to help or societal valueperformance and we have making a significantstrong record progress contributing to the company’s target to halve 4,080 jobs respectively. in16 achieving itsSSE target plc Annual of halving Report its TRIR2019 its carbon intensity by 2030. among FTSE 100 companies when it comes stakeholders to assess whether SSE is the of working withby others2020/21 to since deliver 2017/18. mutually to disclosure of material issues like our type of company envisaged by Section 172. beneficial partnering, in which SSE’s skills response to the gender pay gap (page 34 ), as an operator play a critical part. payment of Fair Tax (page 34 ), allocation of 16 SSE plc Annual Report 2019 Green Bond proceeds and SSE’s contribution to the UK and Irish economies (page 16 ).

SSE plc Annual Report 2019 09 DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Remuneration Committee Chair’s Statement

Dear Shareholder, SSE is committed to being transparent in the way it does business. To this end, and The objective of the Directors’ Remuneration mindful of the continuing public debate Report for 2018/19 is to set out in a simple about executive pay, the Committee strives and transparent way how SSE pays its to keep remuneration arrangements clear, DIRECTORS’ REPORT – CORPORATEDirectors GOVERNANCE (both Executive and non-Executive); consistent and simple to enable effective the decisions made on their pay and how stakeholder scrutiny. In part our decision to much they received in relation to 2018/19. renew the Directors’ Remuneration Policy DIRECTORS’ REPORT – CORPORATE GOVERNANCE on broadly the same basis as before, is based The report also describes how remuneration on the belief that the current arrangements Climate-related corporate reporting Remuneration Committee Chair’slinks to Statement the Company’sDIRECTORS’ purpose andREPORT strategy; – areCORPORATE embedded into the GOVERNANCE business and well 45 how the Remuneration Committee works, understood both internally and externally. Remuneration Committeeand how Chair’s it has considered Statement the perspectives of SSE’s stakeholders. After three years our The provision of energy needed today and Directors’ RemunerationRemuneration Policy is due Committee for building Chair’s a better world Statement of energy for tomorrow renewalDear Shareholder, this year and thus we have set out is,SSE by is definition, committed a long-term to being transparent commitment in in detail the Directors’ Remuneration Policy thatthe wayrequires it does long-term business. stewardship. To this end, A and whichThe objective will beDear subjectof the Shareholder, Directors’ to a binding Remuneration vote at the remunerationmindful of theSSE policy continuing is committed that offers public tofair beingdebate reward transparent in 2019Report AGM. for 2018/19 is to set out in a simple forabout the executiveleadership,the waypay, expertise itthe does Committee and business. strategic strives To this end, and interests and that of SSE as a wholeand thattransparentThe way Asobjective part how of SSE ofthe the payspolicy Directors’ its review, Remuneration we consultedto keep remuneration mindfulAligning of arrangements the continuing UN SDGs clear, public to debate decision-makingDear required Shareholder, in a challenging SSE is committed to being transparent in remuneration policy should be strongDirectors on (bothReport Executivewith for our 2018/19 majorand non-Executive); isshareholders to set out in and a simpleconsistent prominent andabout simple executive to enable pay, effective the Committee strives In the course of engagement throughout market is critical tothe SSE’s Annual future success. Incentive Our Plan the way it does business. To this end, and paper and robust in practice. the decisionsand made proxytransparent on agencies their payway onand how a hownumber SSE pays of its points.stakeholder The scrutiny.to keepWe have remuneration In part made our changesdecision arrangements to the non-financial clear, 2018/19, we have received clear feedback remunerationThe policy objective promotes of the sustainable Directors’ Remuneration mindful of the continuing public debate much they receivedDirectorsengagement in (bothrelation Executive was to 2018/19. particularly and non-Executive); helpfulrenew in the Directors’consistentmeasures Remuneration and of simple the AIP to Policy toenable create effective a balanced from shareholders and other stakeholders performanceReport over the for longer 2018/19 term is to through set out in a simple about executive pay, the Committee strives the decisionsforming the made Committee’s on their pay approach andon how broadly on the thestakeholder sameapproach basis scrutiny. toas thebefore, performanceIn part is based our decision measures to of UK Corporate Governancethat Code they would welcome incentives that are significant deferraland transparent of remuneration way how and SSE pays its to keep remuneration arrangements clear, The new UK Corporate GovernanceThe reportCode alsomuch describesthree they following received how remuneration areas: in relation to 2018/19.on the beliefrenew thatthe the the most current Directors’ senior arrangements leaders,Remuneration designed Policy with a linked to climate change and sustainability holding periods.Directors Equally, (both Executive Executive Directors and non-Executive); consistent and simple to enable effective comes into effect for SSE from 1links April to 2019, the Company’s purpose and strategy; are embeddedon intobroadlyvariety the businessofthe stakeholders same and basis well asin before,mind. With is based four for senior leaders. Within the context are expectedthe to demonstratedecisions made commitment on their pay and how stakeholder scrutiny. In part our decision to but as set out on pages 86 and 87how, the the RemunerationThe –reportPension alsoCommittee arrangementsdescribes works, how – remuneration we areunderstood bothon thenew internally belief business that and thegoals externally. current for 2030 arrangements designed to of the existing remuneration policy, the by building andmuch maintaining they received a substantial in relation to 2018/19. renew the Directors’ Remuneration Policy Board has already implementedand many how of it haslinks considered to proposingthe Company’s the aperspectives new purpose policy for and new strategy; executive are embeddedtackle climate into change the business and support and well global Remuneration Committee agreed in March personal shareholding in the business. on broadly the same basis as before, is based its provisions and will continue toof developSSE’s stakeholders.how theappointments Remuneration After three years to Committeethe our Board to Theworks, align provision understood of energygoals for needed both sustainable internally today development,and and externally. the 2019 to align an element of the Annual The report also describes how remuneration on the belief that the current arrangements Members andthese meetings over the next year. Directors’ Remunerationand howpension it has Policy considered contributions is due for the with perspectives thebuilding wider a better worldRemuneration of energy Committee for tomorrow agreed that Incentive Plan to the achievement of four Performance-relatedlinks to the Company’s pay purpose and strategy; are embedded into the business and well renewal this ofyear SSE’s andemployee stakeholders. thus we population.have After set out three yearsis, by our definition, The a 20% provisionlong-term of the of AIPcommitment energy would needed be focused today andon the Independent fundamental business goals for 2030. Those out-turnshow in 2018/19 the Remuneration Committee works, understood both internally and externally. As announcednon- in November 2018,in detailI have thebeen Directors’– Post-employment Remuneration Policy share ownershipis duethat for requires – our buildinglong-termperformance a better stewardship. world against of A energymeeting for these tomorrow long- four goals are themselves aligned to the Stakeholdersand are how concerned it has considered that the variable the perspectives formallyExecutive appointedMember asAttended/ the designatedwhich non- will berenewal subjectExecutive this to a year binding Directorsand votethus atweare the havealready setelementsremuneration required out of to is,remuneration policy byterm definition, that goals. offers should aThe long-term fair goals clearlyreward are: commitment cutting the carbon Members Director since scheduled Sustainable Development Goals (SDGs) of SSE’s stakeholders. After three years our The provision of energy needed today and Executive Director for Employee 2019Engagement. AGM. in detailhold the Directors’shares to the Remuneration value of twofor Policy times the leadership, theirthat intensityrequires expertise long-termof and electricity strategic stewardship. generated; A trebling of the UN, setting a framework for how reflect performanceDirectors’ in Remuneration relation to objectively Policy is due for building a better world of energy for tomorrow Sue Bruce This is a role that is responsible for wider which willsalary. be subjectIn respect to ofa binding post-employment votedecision-making at the remuneration renewablerequired in policy output;a challenging that accommodating offers fair reward 10m sustainability should be regarded by SSE’s set targets andrenewal that failure this year to achieveand thus such we have set out is, by definition, a long-term commitment (Committee employee engagement, not just Inwith the regards course2019 of engagement AGM.share holdings, throughout SSE was in themarket vanguard is criticalfor thetoelectric SSE’s leadership, futurevehicles; success.expertise and, championing Our and strategic fair leadership team. targets shouldin detailnot be the glossed Directors’ over. Remuneration Policy that requires long-term stewardship. A Chair) to remuneration,Yes 2018 but as the3/3 Remuneration2018/19, we have receivedof practice clear on feedback this. Deferred bonusremunerationdecision-making policytax andpromotes the real required sustainable Living in Wage. a challenging These goals which will be subject to a binding vote at the remuneration policy that offers fair reward Committee Chair I am well positionedfrom shareholders to In the courseandawards other of which engagement stakeholders have vested throughout (theperformance career market overrepresent the is criticallonger the toterm most SSE’s through materialfuture success. contribution Our SSE Jeremy Linking Executive Directors’ The Annual Incentive2019 AGM. Plan (AIP) is determined for the leadership, expertise and strategic feed back to the whole Committee,that sothey we would2018/19, welcomeshare we haveawards) incentives received are thatheld clear are for feedback onesignificant year after deferralremunerationcan of makeremuneration policyto the promotesUN and SDGs sustainableand chime with Beeton 1 Yes 2014 1/1 remuneration with SSE’s against a broad range of financial, operational, decision-making required in a challenging are fully aware of employee sentimentlinked andto climatefrom change shareholdersemployment and sustainability and ceases. other We stakeholders are proposingholding periods.performance Equally,feedback Executive overgiven the by Directorslonger both SSE’s term shareholdersthrough purpose and strategy strategic andIn personal the course performance of engagement targets throughout market is critical to SSE’s future success. Our Crawford views when making decisions onfor executive senior leaders.that they Withinto wouldincrease the welcome context the shareholding incentives areperiod that expected are from significant to demonstrateand stakeholders. deferral commitment of remuneration This new approach and to Our remuneration policy is designed to collectively designed2018/19, towe reflect have receivedbusiness clear feedback remuneration policy promotes sustainable Gillies pay. AsYes part of2015 my Remuneration3/3 of Committee the existinglinked remuneration toone climate year after policy,change employment the and sustainability ceasesby building to andholding maintainingthe non-financialperiods. a Equally,substantial element Executive of the Directors AIP will be sustainable and simple and to facilitate performancefrom each shareholders year. In 2018/19, and theother stakeholders performance over the longer term through responsibilities, I have continuedRemuneration to meet withfor Committee seniortwo leaders. years agreed as Within an in extension March the context to ourpersonal existing shareholdingare expectedbe implemented in the to demonstratebusiness. in full in commitment 2019/20. Richard diligent and effective stewardship that is formulaic assessmentthat they wouldresulted welcome in an outcome incentives that are significant deferral of remuneration and representatives of SSE’s recognised2019 Trade to alignof an the element existingpolicy, of combinedremuneration the Annual with policy, (a) our theapproach by building and maintaining a substantial GillingwaterMembers and meetingsN/A 2007 3/3 vital to the delivery of SSE’s core purpose of 39% of thelinked maximum to climate opportunity. change and sustainability holding periods. Equally, Executive Directors Unions during the year, and meetingsofIncentive providing have Plan Remunerationthe to energy theto achievement good needed Committee leavers today of under four agreed incentive inPerformance-related March plans personalDelivery shareholding of SSE’s pay strategy in the business. is dependent upon Peter Lynas 2 Yes 2018 2/2 for senior leaders. Within the context are expected to demonstrate commitment Independentcovered a range of business issuesfundamental including 2019 business to(where align goals an the forelement default 2030. ofapproachThose the Annual doesout-turns not in 2018/19the shared talent, skills and values of people Members and meetings and building a better world of energy for Nevertheless,of it the is impossible existing remuneration to overlook thepolicy, the by building and maintaining a substantial executivenon- pay. four goals areIncentive themselvesallow Plan accelerated aligned to the achievement to the vesting), (b) ofStakeholders the four holding Performance-related arethroughout concerned SSEthat andthe variableremuneration pay policy Executive Member Attended/ tomorrow, and our strategy of creating fact that SSE’sRemuneration financial results Committee for 2018/19 agreed fell in March personal shareholding in the business. 1 Jeremy Beeton stepped down from the Sustainable Developmentfundamentalperiod business Goalsattached (SDGs) goals to our for PSP 2030. awardselements Those of out-turnsremunerationmust reflect in should 2018/19that. Itclearly must also support SSE’s Members Director Independentsince scheduled value for shareholders and society. well short of2019 what to was align expected an element at the of start the Annual Remuneration CommitteeThe Committee and Board non-has on responsibilityof forthe UN, settingMembersfour goals a (whichframework are and themselvescontinues meetings for how to aligned apply post-cessation) toofreflect the the financial performanceStakeholders year,desire andin torelation so beare the a concerned company Committeeto objectively for that which the variable people Sue19 Bruce July 2018. Executive Member Attended/ Incentive Plan to the achievement of four Performance-related pay overseeing pay for the Group ExecutiveAsustainability sustainableSustainable approachshouldand be to regarded(c)Development executive taking intoby pay SSE’s account Goals that (SDGs) theconcludedset current targets andthatelements thatitwant should failure toof exercisework,remuneration to achieve in itswhich discretion such shouldpeople clearly want to invest, 2 Peter Lynas joinedMembers the RemunerationDirector since scheduled fundamental business goals for 2030. Those out-turns in 2018/19 (Committee Committee (GEC) and is kept wellleadership informed team.of the UN,shareholdings settingIndependent a framework of the longest-serving for howtargets shouldreflect notfrom beperformance whichglossed people over. in relation want to to buy objectively and with Committee on 19 July 2018. is consistent with SSE’s wider commitmentnon- to and make nofour AIP goalsaward are to themselvesthe three Executive aligned to the Stakeholders are concerned that the variable Chair) Sueof Bruce payYes and employment2018 3/3 conditions sustainabilityDirectors. should On bea conservative regarded by estimate, SSE’s set targetswhich peopleand that want failure to topartner. achieve such being a responsible employer Executiveis fundamental Member Directors.Attended/ Sustainable Development Goals (SDGs) elements of remuneration should clearly (Committeethroughout the Group. However,Linking we have ExecutiveleadershipMembersthe team.net Directors’ valueDirector of the sharessince thatThescheduled the Annual Chief Incentivetargets should Plan (AIP) not isbe determined glossed over. Jeremy to the remuneration policy. Fairness is a central of the UN, setting a framework for how reflect performance in relation to objectively 1 Chair) Yes 2018 remuneration3/3 with SSE’s against a broad range of financial, operational, Beeton formalisedYes this2014 so that the1/1 Committeepillar of has the policySue Bruce – Executivefairness to will Executive hold under thisThe policy Performance will be I would Share Planwelcome (PSP) any awards feedback or comments In this section purpose and strategy strategic andsustainability personal performance should be targetsregarded by SSE’s set targets and that failure to achieve such Jeremyfull responsibility for setting GECDirectors pay and in recognition(CommitteeLinkingaround Executive of the 300% extent of Directors’salary.of their granted in 2016The are onAnnual thisdue Report.toIncentive vest followingWe Plan will (AIP) continue the is determined to endeavour Crawford Our remuneration policy is designed to collectively designedleadership to team.reflect business targets should not be glossed over. Chair’s StatementBeetonreviewing1 all-employeeYes 116 reward2014 willresponsibilities, now1/1 Chair)remuneration and– fairnessMaximum relative PSP withYes levelsto theSSE’s – 2018rest the current2018/193/3 financialagainstto year, report a broad subject remuneration range to financial, of financial, matters operational, with clarity Gillies Yes 2015 3/3 be sustainable and simple and to facilitate performance each year. In 2018/19, the Remuneration atform a glance a standing item which118 is consideredof the SSE teampurpose whoserecruitment shared and strategytalent, policy skills suggests aoperational maximum andstrategic value-creationand transparency and personal performance and performance would welcome targets any Crawford Linking Executive Directors’ The Annual Incentive Plan (AIP) is determined Richard at least annually by the Committee.anddiligent values and are JeremyeffectiveOur essential remunerationPSP stewardship to level SSE’s of policysuccess.225%. that is Thisis Thedesigned is to bemeasuredformulaic toreduced assessment overcollectively thesuggestions three-year resulted designed on inperiod. howan to outcomereflect we These can business add to those Directors’ RemunerationGillies Policy Yes 1202015 3/3 1 remuneration with SSE’s against a broad range of financial, operational, Gillingwater N/A 2007 3/3 extentvital to of the their deliveryBeetonbe responsibilities sustainable ofto SSE’s200% andcore formeans simplenew purposeYes Executiveappointments, and2014 to facilitatehaveof 39% in1/1 beenline of the objectivelyperformance maximumqualities assessed opportunity. in each the year.future.as resulting In 2018/19, the Annual Report on Remuneration 128 purpose and strategy strategic and personal performance targets 2Richard of providing diligentthe energywith and neededtheeffective maximum today stewardship for the currentthat is formulaic assessment resulted in an outcome Peter Lynas PolicyYes review2018 2/2 Directors areCrawford well paid, but the remuneration in an out-turnOur of remuneration26% of the maximum policy is designed to collectively designed to reflect business Single TotalGillingwater FigureMany of of Remuneration the prevailingN/A themes1282007 ofpolicyand the building3/3 new is designedGilliesvital a better to to, theChief amongworld delivery Executive. of other energy ofYes things,SSE’s for core2015 purposeopportunity.Nevertheless,3/3 of it 39% is impossible of the maximum to overlook opportunity. the tomorrow, and our strategy of creating fact that SSE’sbe financial sustainable results and for simple 2018/19 and fell to facilitate performance each year. In 2018/19, the Historical RemunerationCode are2 alreadyDisclosures incorporated136 inensure SSE’s they areof providingnot overpaid. the energyUsing reference needed today 1 Jeremy BeetonPeter stepped Lynas down from theYes 2018 2/2 Richard diligentDame and Sue effective Bruce stewardship DBE that is formulaic assessment resulted in an outcome Governance remuneration policy. However,137 thepointsvalue timely for such shareholders asand the Whilstbuilding ratio andofthe athe Committeebettersociety. Chief world Executive’s is of of energy the viewThiswell for shortis the ofsecond Nevertheless,what wastime expected in threeit is impossible yearsat the that start to overlook the Remuneration Committee and Board on Gillingwater N/A 2007 of the3/3 financialvital year, Chairto the and of delivery sothe the Remuneration Committeeof SSE’s core Committee purpose of 39% of the maximum opportunity. 19Implementation July 2018. review for 2019/20 of the remuneration138 policypay ahead to pay of in tomorrow,SSE that(which this andwe renewed haveour strategy again policy chosen of inclusive creatingthe of Committee the fact has that exercised SSE’s financial its discretion results for 2018/19 fell 1 Jeremy Beeton stepped down from the 2 of providing21 May 2019 the energy needed today 2 Peter Lynas joinedits therenewal Remuneration at the 2019 AGM hastoA given sustainable disclose us the voluntarily)Petervalue approachchanges Lynasfor shareholdersand to above executivewider isworkforceYes fit andpay for thatsociety.purpose,2018 toconcluded it reducewill2/2 be – that orwell in it shortshouldthis case of exercise what eliminate was its expected discretion– an at the start Remuneration Committee and Board on and building a better world of energy for Nevertheless, it is impossible to overlook the Committee on 19opportunity July 2018. to reconfirm this andis consistentadjust as withkept SSE’s under wider review commitment in light toof developmentsand make noof AIP the award financial to the year, three and Executive so the Committee 19 July 2018. pay considerations are as important to us as award undertomorrow, the AIP. While and theour Committeestrategy of creating fact that SSE’s financial results for 2018/19 fell required. At the same time the Committeebeing a responsibleA sustainablein the employer business approach is fundamentalmodel to executive and strategy. payDirectors. thatIf felt concluded that it should exercise its discretion 2 Peter Lynas joined the Remuneration the use of external1 Jeremy benchmark Beeton stepped data whendown from the values greatlyvalue the forleadership, shareholders capability and society.and well short of what was expected at the start has been cognisant of proxy agencyto the and remunerationis consistentappropriate, policy. with Fairness aSSE’s new wider isremuneration a central commitment policy to and make no AIP award to the three Executive 116 SSE Committeeplc Annual on Report 19 July 2019 2018. setting executiveRemuneration pay levels. Committee and Board oninsight of the ExecutiveSUMMARY Directors, OFit is in COMMITTEE’S their of the financial year, and so the Committee investor guidance as well as feedbackpillar of we the policybeing19may July –a fairnessresponsible be2018. proposed to Executive employer for shareholder is fundamentalThe approval PerformanceDirectors. Share Plan (PSP) awards In this section A sustainableACTIVITIES approach to DURING executive pay THE that YEARconcluded that it should exercise its discretion have received from shareholdersDirectors as part in recognition2to thePeterwithin remuneration Lynas theof joined the usual extent the policy.three-year Remuneration of theirFairness life ofisgranted a centralpolicy. in 2016 are due to vest following the is consistent with SSE’s wider commitment to and make no AIP award to the three Executive Chair’s Statementof our ongoing engagement.116 responsibilities,pillar andCommitteeAny of fairness the such policy on change relative 19 July– fairness 2018.would to the to restbe Executive the subject2018/19 of financialThe Performance year, subject toShare financial, Plan (PSP) awards In this section being a responsible employer is fundamental Directors. Remuneration at a glance 118 of the SSE teamDirectors whoseconsultation in shared recognition with talent, major of skills the shareholders extentoperational of their and andgranted value-creation– inR 2016eview are of performance dueExecutive to vest Directors’ following performance the Quick read Introduction Regulatory and market Investor expectationsto the remuneration Appendix policy. Fairness A – questions is a central Appendix B – examples Appendix C – participants Appendix D – regulatory Chair’sAs noted Statement in the Strategic Report,and SSE’s 116values areresponsibilities, essentialother stakeholders to SSE’s and success. fairness as required. relativeThe 1 tomeasured the rest over2018/19 the –three-year financialAnalysis2 year,period.of UK subject regulatory These to financial, and market practice3 4 5 Directors’ Remuneration Policy 120 overview and companypillar views of the policy –and fairness recommended to Executive Theof Performance developing Sharepractice Plan (PSP) andawards process and market initiatives evolving business model is nowextent focused of theiron of responsibilities the SSE team whosemeans sharedExecutive talent,have skills been objectivelyoperational– Boardassessed and engagement value-creation as resulting with performance SSE employees and Annual ReportRemuneration on Remuneration at a glance 128 118 In this section Directors in recognitiondisclosures of the extent of their granted in 2016 are due to vest following the regulated energy networks and Directorsrenewable areand well Implementationvalues paid, butare theessential remuneration to ofSSE’s success.in an The out-turnmeasured of 26% ofrecognised over the themaximum three-year Trade Unions period. These Single Total Directors’Figure of RemunerationRemuneration Policy128 120 Chair’s Statement 116 responsibilities, and fairness relative to the rest 2018/19 financial year, subject to financial, energy. Despite these business changespolicy is designedourextentpay to, of among theirpolicy responsibilities other 2019/20 things, means opportunity.Executive have been– Risk objectively assessment assessed in respect as resulting of Directors’ Annual Report on Remuneration 128 Remuneration at a glance 118 of the SSE team whose shared talent, skills operational and value-creation performance Historical Remunerationcore reward Disclosures principles are136 enduringensure and they we areDirectors notThe overpaid. Committee are well Using paid, agreed referencebut the to remunerationa salary freeze in an out-turnRemuneration of 26% of the Policy maximum and values are essential to SSE’s success. The measured over the three-year period. These Governance thinkSingle the Total current Figure policyof Remuneration 137is flexiblepoints enough128 such aspolicy theDirectors’for ratio is Executive designed of Remuneration the Chief Directorsto, among Executive’s Policy for other 2019/20 things,This 120which is the issecondopportunity. time– Review in three of years Directors’ that Remuneration Policy extent of their responsibilities means Executive have been objectively assessed as resulting ImplementationtoHistorical allowfor 2019/20 some Remuneration modifications Disclosures138 to paythe way136to pay we in ensureSSEAnnual below(which they Report or weare in have onnotline Remuneration overpaid. withagain the chosen widerUsing referenceSSEthe employee128Committee has exercisedfor 2019/20 its discretion and beyond Directors are well paid, but the remuneration in an out-turn of 26% of the maximum implementGovernance our pay arrangements.to disclose We137 have voluntarily)pointspopulation. such and as widerthe Performance ratio workforce of the Chiefmeasures Executive’sto reduce have – orThis in isthis –the caseSetting second eliminate performance time in– anthree metrics years that and targets Single Total Figure of Remuneration 128 policy is designed to, among other things, opportunity. therefore decided to propose somepay considerations specificpay toalso arepay been asin importantSSE updated (which toto we usreflect have as againouraward changing chosen underthe the Committee AIP. Whilefor 2019/20 the has Committee exercised its discretion Implementation for 2019/20 138 Historical Remuneration Disclosures 136 ensure they are not overpaid. Using reference minor amendments in 2019 andthe to usereview of externalto disclosebusiness benchmark voluntarily) model, data most and when widernotably workforce avalues change greatlyto the reduce leadership,– Below– or in Board capabilitythis case pay/all-employee eliminate and – an pay Governance 137 points such as the ratio of the Chief Executive’s This is the second time in three years that 116 SSE plcagain Annual when Report the evolving2019 businesssetting model executive is pay considerationstopay AIP levels. to incorporate are as importanta new sustainability toinsight us as of theaward Executive under Directors, the AIP. Whileit is in thetheir Committee pay to pay in SSE (which we have again chosen the Committee has exercised its discretion more clearly established. the usemeasure.Implementation of external benchmarkfor 2019/20 data when138 values greatly the leadership, capability and to disclose voluntarily) and wider workforce to reduce – or in this case eliminate – an setting executive pay levels. insight of the Executive Directors, it is in their 116 SSE plc Annual Report 2019 pay considerations are as important to us as award under the AIP. While the Committee the use of external benchmark data when values greatly the leadership, capability and SSE plc Annual Report 2019 117 116 SSE plc Annual Report 2019 setting executive pay levels. insight of the Executive Directors, it is in their 12 12 Stora Enso 2018: Financials Strategy

Risk management process Stora Enso 2018: Financials Strategy Risk management process Stora Enso is exposed to several financial market risks that the Annual Report 2018 GroupStora is responsibleEnso is exposed for managing to several under financial policies market approved risks that by thethe Annual Report 2018 BoardGroup ofis responsibleDirectors. The for objective managing is under to achieve policies cost-effective approved by funding the Board of Directors. The objective is to achieve cost-effective funding Establish the Context in Group companies and manage financial risks using financial Establish the Context instrumentsin Group companies to reduce and earnings manage volatility. financial The risks main using exposures financial for theinstruments Group besides to reduce currency earnings risk volatility. are interest The rate main risk, exposures funding risk,for commoditythe Group besides price risk currency and credit risk risk.are interest rate risk, funding risk, Risk Assessment commodityFinancial price risks risk are anddiscussed credit risk.in detail in Note 24, Financial risk

Risk Assessment management risk and – Risks Directors of Board the of – Report management,Financial risks of the are Consolidated discussed in financialdetail in Note statements. 24, Financial risk – Report of the Board of Directors – Risks and risk management risk and – Risks Directors of Board the of – Report Identify Risks management, of the Consolidated financial statements. 11 Financials Climate-related corporate reporting Identify Risks Financials Policy principles and mitigation measures 46 Stora Enso 2018: Financials Strategy Monitor and Main risk factors Communicate ThePolicy Group principles has a diversified and mitigation portfolio measures of businesses which mitigates Stora Enso in 2018 MonitorReview and Annual Report 2018Analyse Risks Communicateand Consult exposureThe Group to has any a onediversified country orportfolio product of segment.businesses We which monitor mitigates the Stora Enso in 2018 Review Analyse Risks and Consult exposure to any one country or product segment. We monitor the Risk map external environment continuouslyKey risks in 2018 and our planning assumptions Report of the What is helpful? takeexternal account environment of important continuously near-Stora to medium-term and Enso our planning Oyj and assumptions long-term Risk Time Change Sustainability Level of possible 5 10 15 20 25 Risk* Report of the take account of important near- to medium-term and long-termclassification span vs 2017 management influence Board of Directors Evaluate Risks drivers related to key macro-economic factors. We closely monitor Sustainability Stora Enso Oyj discusses how climate change may impact specific Very high Board of Directors Evaluate Risks thedrivers Board-approved related to key riskmacro-economicMajor appetite Annualimpact – highcompliance likelihoodReport factors. for 2018, We specific closely monitorfinancial aspects of the business model in the future, including the effect on A Global warming E/S LT

the Board-approved risk appetite compliance for specific financial management risk and – Risks Directors of Board the of – Report Consolidated financial 4 8 12 metrics16 and actively20 manageFinancials cash flow and– Report liquidity. ofWe the hedge Board of B Macroeconomy, geopolitics and currency rates E/S/F ST/LT Consolidated financial its supply chain. It also includes at a high level policies and mitigation M L D 50%metrics of theand highly actively probable manage 12-month cash flow net and foreign liquidity. exchange We hedge flows in statements Financials High E Directors B A main50% ofcurrency the highly pairs. probable CurrencyC Sourcing 12-month translation net foreignrisk is reduced exchange by flowsfundingI/S/O in ST/LT statements activities, such as diversification in sourcing. In addition, it includes a C Treat Risks Moderate impact – high likelihood 3 6 J 9 assets,main12 currency whenever pairs.15 economically Currencyp11, translation possible, 12 inrisk the is samereduced currency by funding as materiality matrix with key risks, includingStora Enso anin indication 2018 of the time I Notes to the Consolidated Treat Risks D Regulatory changes E/S/C ST/LT Notes to the Consolidated Medium K F theassets, asset. whenever The divisions economically regularly possible, monitor theirin the order same flows currency and asother financial statements period over which it may impact the business. G E Information technology and security I/O ST Report of the H leadingthe asset. indicators, The divisions where regularly available, monitor so that their they order may flows respond and quickly other financial statements Major impact – medium likelihood Sustainability Board of Directors 2 4 6 P leading8 indicators,10 where available, so that they may respond quickly Likelihood to deterioration in trading conditions. In the event of a significant Extract from the parent O F Ethics and compliance M/C ST Low N economicto deterioration downturn, in trading the Group conditions. would In identify the event and of implement a significant cost Extract from the parent Consolidated financial G People and capabilities I/O ST/LT company Stora Enso Oyj Strategic risks guidelines. Agroforestry concepts have been introduced to integrate reductioneconomic12 measuresdownturn, to the offset Group the would impact identify on margins and implement from deterioration cost company Stora Enso Oyj statements 1 2 3 4 5 H Strategic investments M/C ST/LT financial statements Strategic risks theguidelines. different Agroforestry land use forms concepts and to havemitigate been the introduced competition to integratefor land inreduction sales. measures to offset the impact on margins from deterioration Very low Moderate impact – medium likelihood financial statements Global warming Notes to the Consolidated andthe different the effects land of useincreasing forms and food to prices. mitigate the competition for land in sales.Stora Enso 2018: Financials Strategy 11 I Community relations and social responsibility I/O/C ST Risk managementThe Board process of Directors’ ChangesGlobal warming in precipitation patterns, drought,financial typhoonsstatements and severe frost and the effects of increasing food prices. Stora Enso is exposed to several financial market risks that the Related opportunities J Competition and market demand E/S ST/LT Incidental Minor Moderate Major Extreme Annual Report 2018 The Board of Directors’ periodsChanges in in the precipitation subtropics patterns,could cause drought, damage typhoons to operations and severe and treefrost GroupRelated is opportunitiesresponsible for managing under policies approved by the •RelatedA diverse opportunities businessStora Enso 2018: Financials portfolioStrategy and geographical presence, Proposal for the distribution Extract from the parent K Product safety M/O/C ST Proposal for the distribution Main riskplantations.periods factors in the Increases subtropics in averagecould cause temperatures damage to could operations lead to andchanges tree •RelatedWith regardsopportunities toImpact global – annualised warming, Group we believeEBITDA impact that the / share opportunities price impact / reputational• competitiveA diverseimpact business strength portfolio and resilient and geographical balance sheet pr esence,reduce the of dividend company Stora Enso Oyj Board of Directors. The objective is to achieve cost-effective funding Minor impact – high likelihood Annual Report 2018 plantations. Increases in average temperatures could lead to changes • With regards to global warming, we believe that the opportunities competitive strength and resilient balance sheet reduce the of dividend in the tree species composition of forests.financial Milder statements winters could impact in Groupoutweigh companies risks in nearand manageterm. financial risks using financial Group’s risk exposuresL Occupational health and safety I/O ST

Establish the Context Financials in the tree species composition of forests. Milder winters could impact outweighKey risks risks in in 2018 near term. Group’s risk exposures Risk mapharvesting and transport of wood in northern regions and the related instruments• Products to based reduce on earningsrenewable volatility. materials The with main a low exposures carbon forfootprint • Strategic opportunitiesM Physicalin changing assets currency and macroeconomicI/O ST/LT Auditor’s report Financials harvesting and transport of wood inThe northern Board regionsof Directors’ and the related • Products based on renewable materials withRisk a low carbonTime footprintChange • LevelStrategic of possible opportunities in changing currency and macroeconomic Auditor’s report costs. Additional 5demand for biomass10 fuels and15 agricultural20 land may the25 helpGroup Risk*customers besides currencyand society risk at are large interest to reduce rate risk, CO 2funding emissions risk, by environment. Major impact – low likelihood Proposal for the distribution classification span vs 2017 management influence Verylimitcosts. high the Additional availability demand of land for for biomass fibre production, fuels and agriculturalaffecting the land price may of commodityprovidinghelp customers price an alternative risk and and society credit to solutions at risk. large tobased reduce on fossilCO2 emissions fuels or other by environment. N Digitalisation I/S ST/LT Stora Enso in capital markets Risk Assessment of dividend Major impact – high likelihood biomass.limit the availability The increasing of land global for fibre demand production, for water affecting may in the long-price of non-renewableprovidingFinancial risksan alternative are materials. discussed to solutions in detail based in Note on 24, fossil Financial fuels or risk other Strategic investmentsO Forest and land use I/O/C ST/LT Stora Enso in capital markets A Global warming E/S LT – Report of the Board of Directors – Risks and risk management risk and – Risks Directors of Board the of – Report – Report of the Board of Directors – Risks and risk management risk and – Risks Directors of Board the of – Report termbiomass. impact The the increasing Group’s4 operationsglobal 8demand through for water our12 supply may in chains. the16 long- management,20 non-renewable of the materials. Consolidated financial statements. StoraStrategic Enso’s investments business strategyP Mergers, is acquisitions to transform and divestitures itself from a traditionalM/I/O/C ST Financials Auditor’s report B Macroeconomy, geopolitics and currency rates E/S/F ST/LT Stora Enso as a taxpayer Identify Risks M L D Financials termHigh impact the Group’s operations throughE our supply chains. Macroeconomic, geopolitical, and currency rate risks paperStora Enso’sand board business producer strategy* Residual to riska customer-focused is= risk to remaining transform after risk itself treatment renewable from a traditional materials Financials Stora Enso as a taxpayer B A C Sourcing I/S/O ST/LT Policy principles and mitigation measuresStora Enso in Ccapital markets StoraMacroeconomic,Policy Enso principles operates and geopolitical, in mitigation more than and measures 30 currencycountries rateand isrisks affected by growthpaper and company. board producer The success to a ofcustomer-focused this transformation renewable depends materials on Moderate impact – high likelihood Symbols Change vs 2017 Capacities by mill in 2019 3 6 J 9 12 15 Stora Enso in 2018 Policy principles and mitigation measuresI Stora Enso operates in more than 30 countries and is affected by growth company. The success of this transformation depends on Monitor and Stora Enso is committed to contributing and mitigatingCommunicate the effects theThe globalGroupD economy. hasRegulatory a diversified changes Changes portfolio in broad of economicbusinessesE/S/C conditions, which ST/LTmitigates sharp the Group’s ability to understand the needs of the customer and find Capacities by mill in 2019 K F M = Mandatory obligations Increased Stora Enso in 2018 MediumStora Enso is committed to contributingStora andEnso mitigating as a taxpayer the effects the global economy. Changes in broad economic conditions, sharp the Group’s ability to understand the needs of the customer and find Review Analyse Risksof climate change by actively seeking opportunitiesG to andreduce Consult marketexposure corrections,E toInformation any one technology increasingcountry and security or productvolatility segment. in foreignI/O We exchange monitorST rates the the best way to serve themE = External with factorsthe right offering andDecreased with the right InformationReport of for the shareholders H I = Internal capabilities Stable of climate change by actively seeking opportunities to reduce market corrections, increasing volatility in foreign exchange rates the best way to serve them withSustainability the right offering and with the right the Group’s carbon footprint. RisksCapacities related to byclimate mill in change 2019 are andexternal chronic Majorenvironment impactfiscal – mediumimbalances continuously likelihood could and have our planningnegative assumptionsand material production asset portfolio.S = StrategicFailure to complete strategic projects InformationBoard of forDirectors shareholders 2 4 6 P 8 10 Report of the Likelihood managedthe Group’s via carbon activities footprint. related Risks to finding related clean, to climate affordableO change and are safe impactandtake chronicaccount on the fiscal of Group’s important imbalances profit, near- cash tocould medium-term flows have andnegative financial and andlong-term materialposition. A inproduction accordance asset with portfolio. the Oagreed= OperationalFailure schedule, to complete budget strategic orLevel specifications of possible projects

F Ethics and compliance M/C ST Sustainability Low N C = Compliance management influence managed via activities related to findingInformation clean, f oraffordable shareholders and safe impact on the Group’s profit, cash flows and financial position. A in accordance with the Fagreed= Financial schedule, market and reporting budget or specifications Board of Directors Consolidated financial Evaluate energyRisks sources for production and transportation, and reducing prolongeddrivers relatedG globalPeople to and key recession capabilities macro-economic may materially factors. and I/OWe adversely closelyST/LT monitoraffect can have serious impacts on our financial performance. Significant, energy sources for production and transportation, and reducing prolonged global recession may materially and adversely affect can have serious impactsST = on Short-term our financial performance. Significant, statements energy consumption.1 Additional2 measures include3 energy efficiency4 Storathe5 Board-approved Enso’sH Strategic performance investments risk appetite and financial compliance condition. forM/C specific A recession ST/LTfinancial may unforeseen changes in LTcosts = Long-term or an inability to sell theLow envisaged High

Consolidated financial Veryinitiatives,energy low consumption. the use of carbon-neutral Additional measures biomass include fuels, energy maximising efficiency alsoStorametrics materially Enso’s andModerate actively performance affectimpact manage – the medium Group’s and likelihood cash financial customers,flow and condition. liquidity. suppliers A recessionWe andhedge other may volumesunforeseen or achievechanges planned in costs price or an levels inability may to preventsell the envisagedus from Notes to the Consolidated theinitiatives, utilisation the ofuse combined of carbon-neutral heat and power,biomass and fuels, sequestration maximising of partiesalso50% materially of withtheI highlyCommunity whom affect probable relationsit does the and Group’s socialbusiness. 12-month responsibility customers, Exchange net foreign suppliersI/O/C rate exchange fluctuations andST flows other inmay achievingvolumes or our achieve business planned goals. price levels may prevent us from statements financial statements the utilisation of combined heat and power, and sequestration of parties withJ Competition whom andit does market demand business. ExchangeE/S rate fluctuationsST/LT may achieving our business goals. carbon dioxideIncidental in forestsMinor and products.Moderate Diligent plantationMajor planningExtreme havemain currencya material pairs. impact Currency on the translationreported results risk is through reduced transaction by funding Treat Risks Governance carbon dioxide in forests and products. Diligent plantation planning have a materialK Product impact safety on the reported results M/O/Cthrough transactionST Extract from the parent is ensured to avoid frost sensitive areas and non-controversial tree andassets, translation whenever risk economically impact. possible, in the same currency as Policy principles and mitigation measures Governance Notes to the Consolidated Governance is ensuredImpact – annualised to avoid Groupfrost sensitiveEBITDA impact areas / share and price non-controversial impact / reputational tree impact and translation risk impact. Policy principles and mitigation measures financial statements company Stora Enso Oyj breeding and R&D programmes are applied to increase tolerance of the Aasset. significantMinor The impact divisions and – high sustained likelihood regularly economic monitor theirdownturn, order flowsor any andsimilar other Risks are mitigated through profound and detailed pre-feasibility financial statements extremebreeding temperatures. and R&D programmes Stora Enso are maintains applied to a increasediversity toleranceof forest types of event,leadingA significant could indicators,L Occupational have and a where healthmaterial sustained and available, safety adverse economic so effect that downturn,theyon theI/O may Group’s respondor anyST operational similar quickly andRisks feasibility are mitigated studies through which profound are prepared and fordetailed each largepre-feasibility investment. andextreme structures temperatures. and enforces Stora diversification Enso maintains in a diversitywood sourcing. of forest Wood types performanceevent,to deterioration couldM Physical have and in assets financialtradinga material conditions. condition. adverse effectInThe the onGroup’sevent theI/O of Group’sreported a significantST/LT operational results and Groupand feasibility investment studies guidelines which are stipulate prepared the forprocess, each large governance, investment. Extract from the parent The Board of Directors’ harvestingand structures in soft and soils enforces involves diversification the implementation in wood of sourcing. best practices Wood reportedperformanceeconomicMajor net downturn, impactassets and –financial low may thelikelihood fluctuateGroup condition. would as the identifyThe exchangeGroup’s and reportedimplement rates change. results cost and riskGroup management investment and guidelines monitoring stipulate procedures the process, for strategic governance, projects. Proposal for the distribution company Stora Enso Oyj harvesting in soft soils involves the implementation of best practices reported NnetDigitalisation assets may fluctuate as the exchangeI/S rates change.ST/LT risk management and monitoring procedures for strategic projects. Strategic risks of dividend guidelines. Agroforestry concepts have been introduced to integrate reduction measures to offset the impact on margins from deterioration financial statements the different land use forms and to mitigate the competition for land in sales. O Forest and land use I/O/C ST/LT Financials Global warming Auditor’s report and the effects of increasing food prices. P Mergers, acquisitions and divestitures M/I/O/C ST The Board of Directors’ Changes in precipitation patterns, drought, typhoons and severe frost Related * opportunitiesResidual risk = risk remaining after risk treatment Stora Enso in capital markets Proposal for the distribution periods in the subtropics could cause damage to operations and tree Related opportunities • A diverseSymbols business portfolio andChange geographical vs 2017 presence, of dividend plantations. IncreasesSto inra average Enso as atemperatures taxpayer could lead to changes • With regards to global warming, we believe that the opportunities competitiveM = Mandatory strength obligations and resilientIncreased balance sheet reduce the E = External factors Decreased in the tree species composition of forests. Milder winters could impact outweigh risks in near term. Group’sI = Internalrisk exposures capabilities Stable harvesting and transportCapacities of wood by mill in northern in 2019 regions and the related • Products based on renewable materials with a low carbon footprint • StrategicS = Strategic opportunities in changing currency and macroeconomic Financials Auditor’s report O = Operational Level of possible costs. Additional demand for biomass fuels and agricultural land may help customers and society at large to reduce CO2 emissions by environment.C = Compliance management influence Information for shareholders F = Financial market and reporting Stora Enso in capital markets limit the availability of land for fibre production, affecting the price of providing an alternative to solutions based on fossil fuels or other ST = Short-term biomass. The increasing global demand for water may in the long- non-renewable materials. StrategicLT =investments Long-term Low High Stora Enso as a taxpayer term impact the Group’s operations through our supply chains. Stora Enso’s business strategy is to transform itself from a traditional Macroeconomic, geopolitical, and currency rate risks paper and board producer to a customer-focused renewable materials Capacities by mill in 2019 Policy principles and mitigation measures Stora Enso operates in more than 30 countries and is affected by growth company. The success of this transformation depends on Stora Enso is committed to contributing and mitigating the effects Quickthe globalread economy. ChangesIntroduction in broad economic conditions,Regulatory sharp and marketthe Group’s 1 abilityInvestor to expectations understand the needs2 Appendix of the customer A – questions and find 3 Appendix B – examples 4 AppendixGovernance C – participants 5 Appendix D – regulatory of climate change by actively seeking opportunities to reduce market corrections, increasing volatility in foreign exchangeoverview rates the best wayand to serve company them views with the right offeringand recommended and with the right of developing practice and process and market initiatives Information for shareholders the Group’s carbon footprint. Risks related to climate change are and chronic fiscal imbalances could have negative and material production asset portfolio. Failure to completedisclosures strategic projects managed via activities related to finding clean, affordable and safe impact on the Group’s profit, cash flows and financial position. A in accordance with the agreed schedule, budget or specifications energy sources for production and transportation, and reducing prolonged global recession may materially and adversely affect can have serious impacts on our financial performance. Significant, energy consumption. Additional measures include energy efficiency Stora Enso’s performance and financial condition. A recession may unforeseen changes in costs or an inability to sell the envisaged initiatives, the use of carbon-neutral biomass fuels, maximising also materially affect the Group’s customers, suppliers and other volumes or achieve planned price levels may prevent us from the utilisation of combined heat and power, and sequestration of parties with whom it does business. Exchange rate fluctuations may achieving our business goals. carbon dioxide in forests and products. Diligent plantation planning have a material impact on the reported results through transaction is ensured to avoid frost sensitive areas and non-controversial tree and translation risk impact. Policy principles and mitigation measures Governance breeding and R&D programmes are applied to increase tolerance of A significant and sustained economic downturn, or any similar Risks are mitigated through profound and detailed pre-feasibility extreme temperatures. Stora Enso maintains a diversity of forest types event, could have a material adverse effect on the Group’s operational and feasibility studies which are prepared for each large investment. and structures and enforces diversification in wood sourcing. Wood performance and financial condition. The Group’s reported results and Group investment guidelines stipulate the process, governance, harvesting in soft soils involves the implementation of best practices reported net assets may fluctuate as the exchange rates change. risk management and monitoring procedures for strategic projects. Strategic Report

Climate-related corporate reporting 47

Protecting our environment Environmental Management System Our car policy, which is subject to regular Halma plc Environmental issues, including climate We are committed to developing review, directly supports the Group’s 2018 change, are a challenge affecting all and implementing an Environmental commitment to sustainability by setting a Annual Report and Accounts p45 businesses globally and an issue everyone Management System (EMS) throughout the general cap on permissible CO2 emissions must address collectively to preserve Group to measure, control and reduce our for all company-owned vehicles and vehicles our planet for future generations. Halma environmental impact. We have developed used by employees who have taken a recognises that, in common with other performance indicators that assist local cash allowance in lieu of a company car. businesses, all of our activities have an management in implementing the policy What is helpful? environmental impact. Our approach is to and ultimately developing an EMS. All We are committed to reducing our carbon not have capital-intensive manufacturing Group companies are encouraged to footprint. The Board recognises that a These extracts explain Halma’s overall approach to climate- processes and also aim to limit our impact undertake ISO 14001 accreditation, where growing international business such as change issues and how it may impact their business model. by operating geographically close to our end warranted, and more than 22% of the Group’s Halma cannot continue to reduce energy

markets. Operating in this way helps ensure revenue is derived from companies with consumption and absolute CO2 emissions that our environmental impact is relatively an ISO 14001 accreditation. year-on-year as it acquires and grows its low when compared to other manufacturers. portfolio of companies. Therefore we have As a global group of life-saving companies, Group companies are encouraged to set a target of reducing our total carbon we also have an excellent long-term record improve energy efficiency, reduce waste and emissions relative to revenues by 10% over the for addressing environmental issues that emissions and reduce their use, or make more three years from March 2016 to March 2019. affect our businesses and for developing efficient use, of materials. The same intensity target was set in 2010 products that monitor and protect and 2013, and was achieved in 2013 and 2016

the environment. Key environmental impacts in the Group have respectively. Our CO2 emissions reduced been identified as emissions to air and water, between 2017 and 2018 on an intensity basis Products promoting a cleaner tomorrow water and energy consumption, and waste by 10%. We have been consistent in reducing

Our businesses have a range of innovative production. In addition to the information set our CO2 on an intensity basis over recent products which play a very positive role in out in this section of the Report, we publish years, as illustrated in the chart below. We monitoring and improving the environment. data annually on our website on energy will report on our performance against the Halma brands are world leaders in a number consumption, waste and transportation. three-year intensity target to 2019 next year of technologies which help to minimise and consider setting a new target for the environmental damage. Our principal Our carbon footprint period thereafter. environmental technologies are water The Group has a clear policy on carbon leakage detection and wireless monitoring, which is published on our website. The Halma recognises that sound carbon gas emissions monitoring, water and effluent Carbon Policy has been set by the Board management is vital to the continued success analysis, UV water treatment and optical and our Finance Director, Kevin Thompson, of our business and that of our customers sensing. We promote the use of UV water has principal responsibility for co-ordinating and stakeholders. As such, it must be fully sterilisation which eliminates the need and monitoring the Policy. In line with our integrated into our business so that it is to use dangerous chemicals, as well as autonomous structure, a senior executive an everyday part of what we all do. making products that minimise the waste in each of our higher impact businesses of clean water. has been allocated with responsibility for implementing the Carbon Policy at local level. We are committed to the development of equipment for measuring and monitoring environmental changes and controlling the impact of industrial activities over the long term.

GHG emissions data for the period 2 April 2017 to 31 March 2018 CO2e emissions 2017/18 2016/17 (tonnes/£m of revenue)

CO2e CO2e emissions emissions global tonnes global tonnes 60 Quick read Introduction Regulatory and market Investor expectations Appendix A – questions Appendix B – examples Appendix C – participants Appendix D – regulatory Scope 1: Combustion of fuel and operation of facilities 4,771 1 4,658 512 3 4 5 overview and company views50 and48 recommended of developing practice and process and market initiatives disclosures Scope 2: Electricity, heat, steam and cooling purchased 41 for own use 14,043 14,458 40 37 33 Scope 3: Business air travel, WTT (Well to Tank) 17,281 16,512 30 Total gross emissions 36,095 35,628 20 Intensity measure of tonnes of CO2e gross emissions per £m revenue 33.5 37.0 10

2014 2015 2016 2017 2018

Halma plc Annual Report and Accounts 2018 safer | cleaner | healthier 45 OUR FOOD OUR PLANET OUR WORKPLACE OUR COMMUNITY

Science-based goal: Reduce absolute We plan to accelerate recent progress “gates” during this process, we have started We are also building and integrating GHG emissions across our full value to reach our emissions-reduction goals. to assess a product’s environmental simpler, more user-friendly eco- chain by 28 percent by 2025 (compared Our ongoing challenge is to decrease our characteristics, including through life-cycle design tools, which will enable non- to 2010). Our longer-term goal is to footprint while growing our business. assessment. We launched this initiative specialists to make environmental achieve sustainable emission levels in late in fiscal 2016 in our Yoplait brand footprinting a mainstream part of See the Appendix for details on our GHG line with scientific consensus by 2050. in Europe, and added the Häagen-Dazs product development. We began emissions calculation methodology. For brand during fiscal 2017. Through the implementing these tools into Climate-relatedPerformance: corporate reporting In 2017, our GHG information on the risks and opportunities 48 end of the fiscal year, we assessed 91 packaging design in the U.S. in 2015. emissions footprint decreased 11 percent General Mills faces due to climate projects to determine the GHG emissions compared to 2010, while net sales rose change, see our CDP submission online. Value chain: The sections on impact of various product changes, What 6is percent. helpful? This reflects sales of lower Generalthe Mills following Inc pages break down Product environmental footprint beyond the effect on typical attributes GHG emissions intensity products, our footprint by value chain General Mills Inc includes a description of strategic plans, evaluation:with reference Considering to a 2050 targetenvironmental such as cost and quality. Twenty- Global Responsibility Report 2018 as well as improved efficiency in phase and describe our efforts and scientific consensus. The example also includes referenceimpacts to external in product sources design used. and four of these projects demonstrated p19 manufacturing and logistics. Our GHG to improve performance. development is essential to improving opportunities for improvement. We have emissions fell 6 percent versus 2016, our carbon footprint and overall implemented 15 so far, saving 3,000 while net sales decreased 6 percent. environmental performance. At specific metric tons CO₂e on an annual basis.

The path to 2050*

20 2025 goal**: Reduce absolute GHG emissions across our full 17.3 value chain by 28 percent 16.4

15.4 28% ** Reduce absolute 15 2050 goal : GHG emissions across our full value chain to sustainable levels

e in line with scientific consensus 2 12.5

41- 72% 10

7.5

5 Consuming

Million metric tons CO Million metric tons Selling Shipping Producing Packaging supply chain Agriculture and transformation 0 2010 2016 2017 2025 2050

* General Mills worked with Quantis, a sustainability and life-cycle assessment (LCA) consulting firm, to calculate our company’s GHG emissions footprint. The calculation methodologies align with the Greenhouse Gas Protocol, developed by World Resources Institute (WRI) and World Business Council for Sustainable Development (WBCSD). Relative size of value chain segments for 2025 and 2050 are based on 2010 data. Differences compared to the data reported last year are due to updates to the underlying ecoinvent database and enhancements to calculation methodologies and accuracy.

** Compared to 2010. GENERAL MILLS GLOBAL RESPONSIBILITY 19

Ørsted Annual report 2018 Management’s review Our business Contents Climate-related corporate reporting 49

Ørsted A/S Sustainability Report 2018 Our strategy and capital allocation p9 and Annual Report 2018 Green leadership p18 and 22 Strategic direction and growth Strategic growth platform Our strategic shift from black to green energy Green energy share Carbon intensity of power and heat generation % g CO e/kWh is reflected in our capital base. In 2007, only 100 EuropeØrsted 600 Americas2 Asia 16% of our total capital employed was What is helpful? 500 invested in renewables. In 2018, the share of Offshore80 Global leader in offshore wind Ørsted A/S includes a description of — Wind — Strategic core renewables had increased to 87%. 400 strategic plans, including reference — Transmission60 — Growth and value creation — Scale to the IPCC recommended 1.5 — Storage 300 In addition, our strategic transformation to — Keep pioneering and innovating degree pathway, and an indication 40 become a green energy company has posi- 200 of strategic decisions being made in tioned Ørsted as one of the largest commercial light of this. Ørsted Annual report 2018 Management’s review Our business Onshore20 Leading US renewable companyContents 100 renewable energy companies in the world, — Wind — Strategic diversification Ørsted measured by the capacity of renewable energy — Solar PV — Scale that is installed and under construction. By the — Storage2010 2015 2020 2025 2030 2035 2040 2045 2050 2010 2015 — 2020Technology 2025 2030 integration 2035 2040 2045 2050 — New value-creating growth platform end of 2018, we had 12GW of renewable energy Ørsted’s targets for green energy share Ørsted's carbon intensity of energy generation capacity installed, under construction, or where IPCC's recommended targets for a 1.5°C pathway The International Energy Agency's 2°C scenario for greenhouse gas reductions a FID has been taken, with the vast majority Bioenergy* IPCC concludes that a rapid build-out— Explore of renewable growth energy before and 2030 value creation — Biomass makes it possible to limit global warmingpotential to 1.5°C without of Bioenergy any reliance on Our strategicbeing in offshore playing wind. In addition, we have field carbon capture and storage (CCS). In this scenario, nuclear energy continues — Renescience to constitute a significant part of the global energy mix towards 2050. been awarded or contracted projects with a — Biogas capacity of 4.8GW where investment decisions are yet to be taken. Furthermore, we have a The renewable energy value chain is made Besides existing market positions, we exploreCustomer Renewables generation— Route to marketStorage for Ørsted’s T&D Consumption strong pipeline of projects under development. product portfolio up of various components. These range from the strategic and financial potential of addiSolutions- — Risk management generation of green power, through storage, tional green growth opportunities. Both solar Wholesale Towards 2030, we expect that the global — Incremental value creation transmission and distribution to the consump- PV, bioenergy and storage offer significant Offshore wind market for renewable energy will more than tion side. Within this energy system, we have growth opportunities on the back of signifi- triple to 3,600GW. As one of the leading com- Corporate customers taken the following strategic positions. cant cost reductions. Electricity panies in renewable energy, Ørsted is strongly storage Electricity positioned to take part in this growth. We have a strong Onshoregrowth windplatform to support in Europe,transmission North America, and Asia. We will onshore wind, but also including solar energy Offshore wind is our core focus and has been Considering our rapidly growing global portfo- Residential customers our strategic ambition, comprising our four keep pioneeringand and innovating the industry. and energy storage. since we decided to transform Ørsted to a lio of renewable energy assets, we decided to We have increased our ambition for offshore business units: Offshore, Onshore, Bioenergy Offshore winddistribution will remain the strategic core of green energy company. It is a rapidly growing initiate a structured divestment process of our wind from a capacity of 11-12GW to a capaci- and Customer Solutions. our company. Bioenergy includes our biomass-converted market in the global energy system with at- Danish power distribution, residential custom- Solar PV Electric heating ty of 15GW by 2025. By 2030, our strategic combined heat and power plants in Denmark tractive value-creating opportunities. We have er and city light businesses in June 2018. Al- ambition is to achieve an installed renewa- Our Offshore business unit includes offshore The second growth avenue is our Onshore and our waste-to-energy and biogas technolo- been successful in leveraging our capabilities though the political support for continuing this Power to gas ble capacity of more than 30GW, provided wind, transmission andBioenergy storage. We strive business unit, where the aim is toElectric create vehiclesa gies. We will continue to explore the growth to become the leading global player in the structured process ceased on 13 January this that the development creates value for our to maintain our global market leadership in leading North American company within and value creation potential within bioenergy. offshore wind market, representing a 30% year, we are continuing to investigate different shareholders. offshore wind and will continue to expand renewable energy, with a main emphasis on share of the total capacity in operation or options for exiting the businesses during 2019. Invest to grow Explore potential Exit No presence under construction. In addition, following the political agreement in support of our IPO, we are conducting a 22 / 193 Onshore wind is our second growth platform structured divestment process of our offshore Quick read Introduction Regulatory and market 1 Investor expectations 2 Appendix A – questions 3 Appendix B – examples 4 Appendix C – participants 5 Appendix D – regulatory where we now have a strong regional position, gas pipeline (including the Nybro Gas Treat-overview and company views and recommended of developing practice and process and market initiatives with the acquisition of Lincoln Clean Energy in ment Plant) and oil pipeline (including the disclosures the US. The US onshore market offers attrac- Frederica stabilisation plant). The transactions tive value-creating opportunities and has are expected to be signed in 2019. significant long-term growth potential. The transaction provides technology and market di- Although we acknowledge electric heating versification and enables us to serve the future and electric vehicles as key components in energy demand through a multi-technology the renewable energy value chain, we have no business platform. In addition, the US market actual plans to enter these markets. will add to our scale and critical mass.

To secure market access, our strategic focus is on wholesale and corporate customers which account for the largest share of energy consumption. This position enables a route to market for our green energy generation.

18 / 193 90 FRESNILLO PLC ANNUAL REPORT AND ACCOUNTS 2017

SOCIAL AND SUSTAINABILITY REPORT CONTINUED

Climate-related corporate reporting 50

WATER STEWARDSHIP OUR GOAL Fresnillo plc To increase access to safe water by minimising EXPLORATION DEVELOPMENT OPERATION CLOSURE our water footprint and cooperating with our Annual Report and Accounts 2017 Relevance and risk in the stakeholders, notably communities, authorities lifecycle of mining and NGOs. p90 Risk: High Medium Low

Although we operate in a number of arid Securing access and being responsible we carry out EIAs to gain knowledge regions, the mining and processing of water stewards are critical success of water resources and their What is helpful? ore requires large volumes of water – factors, and the prevention of vulnerability on a local and regional and this is often a relevant issue for local environmental impacts on water scale. Responding to the expectations In this extract, Fresnillo highlights the water risk issues on a communities. We recognise that water resources and related ecosystems of our stakeholders, we conduct our location-by-location basis. is a human right and cooperate with is fundamental to our social and evaluation of water risk using the communities to increase water access. environmental licences to operate. Aqueduct tool from the World Before we commence any project, Resources Institute (WRI). WATER RISK ASSESSMENT UNDER CURRENT CONDITIONS

Regulatory & Overall water risk Physical risk quality Physical risk quantity reputational risk Fresnillo Medium to high risk No data High risk Low to medium risk Saucito Medium to high risk No data High risk Low to medium risk Penmont Medium to high risk Low to medium risk High risk Low to medium risk Ciénega Medium to high risk Low to medium risk Medium to high risk Low to medium risk San Julián Medium to high risk Medium to high risk Medium to high risk Low to medium risk

Physical risk quality considers return flow ratio and upstream protected land. Physical risk quantity considers baseline water stress, inter-annual variability, seasonal variability, flood occurrence, drought severity, upstream storage and groundwater stress. Regulatory and reputational risk considers media coverage, access to water and threatened amphibians.

WATER STRESS CONSIDERING CLIMATE CHANGE SCENARIOS (2020 AND 2030)

Business as usual 2020 Business as usual 2030 Pessimistic 2020 Pessimistic 2030 Fresnillo Near normal 1.4x increase Near normal 1.4x increase Saucito Near normal 1.4x increase Near normal 1.4x increase Penmont 1.4x increase 1.4x increase 1.4x increase 1.4x increase Ciénega Near normal 1.4x increase Near normal 1.4x increase San Julián Near normal Near normal Near normal 1.4x increase

Water stress measures the ratio of total annual water withdrawal to average annual available blue water. This is a commonly used indicator also known as relative water demand.

HOW WE WILL WIN Enabler – Environmental compliance • Respect our water quotas, Enabler – Operational excellence to and cooperation with local monitoring our discharges and reduce our water footprint. stakeholders. taking action to ensure that they adhere to water quality regulations. Key activities: Key activities: • Cooperate with water authorities • Implement closed water circuits, • Secure water rights from authorities and other stakeholders, including eliminating the need to discharge before using any water in mining communities, to increase water processed water into water streams. and mineral processing. access. See the community relations • Reuse wastewater from • Send unused water from dewatering section (pages 96-103). municipalities and our own to settlement ponds to control operations and camps. suspended solids, before discharging the cleaned water downstream.

Shipping OSH LNG Expansion 142 MTPA of new supply required by 2035 under the Upstream and liquefaction US LNG IEA 450 (2°C) scenario equates to a breakeven of US$8.8/mBtu 10

6.1 Wood Mackenzie’s breakeven 6

4 Climate Change Oil Search Annual Report 2017 Climate Change 2 Oil Search Annual Report 2017 QATARI QATARI DEBOTTLENECKING OSH LNG EXPANSION LNG EXPANSION MOZAMBIQUE GOLDEN PASS LNG GOLDEN PASS CAMERON TRAIN 4 LNG MOZAMBIQUE COVE JORDAN LNG MAGNOLIA 0 0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160

2035 LNG break-even cost stacks under IEA 450 (Wood Mackenzie, 2017). Cross-section of projects required to meet the additional demand required under an IEA 450 scenario. Excludes projects that are operational or under construction.

As recommended by the TCFD1, the The expansion project sits on the The IEA 450 (2°C) scenario projects scenarios selected reflect a wide range lower quartile of the cost curve an additional 20 million barrels per of potential climate change outcomes. compared to other proposed new day of oil is required to meet demand. The price is risk-related and will be v Enabling Oil Search’s project Oil Search’s globally competitive reviewed and updated annually. teams to optimise project design The outcome of the scenario analysis Nanushuk oil project in Alaska is well When testing project economics decisions and reduce exposure to demonstrates that the Company’s positioned to meet the additional sensitivities, the Company also uses future carbon costs. high quality, globally competitive LNG Climate-related corporate reportingdemand and remains NPV-positive a low and high carbon price. 51 assets will continue to be resilient Oil Search’s climate under this 2°C scenario. Under From 2018, a component of the under the IEA scenarios tested. scenario analysis indicates the IEA New Policies scenario, An internal carbon price embeds short-term incentive (STI) scheme will Oil Search L d the Nanushuk oil assets are more awareness and consideration of be linked to the use of tOil Search’s PNG LNG and the Company’s LNG long-term resilience and favourable than the Company’s climate risks in decision-making by: internal Annualcarbon Reportprice. This reflects the expansion project continue to have continued economic value base case. v Enabling Oil Search decision- Company’sp45-49 commitment to managing positive Net Present Values (NPV) generation in a range makers to consider the future risk climate-related risks and is designed and will have an economic life of scenarios, including of carbon costs (direct or implicit to support implementation across consistent with CEAs under the Use of internal carbon price a 2°C pathway. prices) when making capital the Company.What is helpful? IEA 450 (2°C) Scenario. and introduction of carbon Oil Search outlines the carbon price it uses in different regions. price-linked STI investment decisions. Please refer to Oil Search’s Climate The Company’s LNG expansion Oil Search’s internal carbon price is v Ensuring carbon price risks are Change Resilience Report for more project performs no worse than country-specific and applied to the assessed and managed in the same information on climate change projects needed to meet additional Oil Search’s current low CEA base case of project economics. way as any other financial risk. management and analysis. LNG demand, making it one of the in an IEA 450 (2°C) scenario and For projects in PNG, the Company most price-resilient of new LNG is positively impacted under an appliesThe price a US$25 is risk-related price and and for will projects be v Enabling Oil Search’s project projects globally. IEA New Policies scenario. inreviewed the USA, and a US$40 updated price annually. is applied. teams to optimise project design When testing project economics decisions and reduce exposure to Thesensitivities, price is risk-related the Company and also will usesbe v Enablingfuture carbon Oil Search’s costs. project revieweda low and andhigh updated carbon price.annually. teams to optimise project design When testing project economics Fromdecisions 2018, a componentand reduce exposureof the to An internal carbon price embeds short-term incentive (STI) scheme will 1. https://www.fsb-tcfd.org/publications/final-implementing-tcfd-recommendations/ sensitivities, the Company also uses future carbon costs. a lowawareness and high and carbonconsideration price. of be linked to the use of Oil Search’s climate risks in decision-making by: Frominternal 2018, carbon a component price. This ofreflects the the 46 vAn internalEnabling carbon Oil Search price decision-embeds short-termCompany’s incentive commitment (STI) toscheme managing will awarenessmakers andto consider consideration the future of risk beclimate-related linked to the risks use ofand Oil is Search’sdesigned climate risks in decision-making by: internalto support carbon implementation price. This reflects across the of carbon costs (direct or implicit 47 v Enablingprices) when Oil Searchmaking decision- capital Company’sthe Company. commitment to managing climate-related risks and is designed makersinvestment to consider decisions. the future risk Please refer to Oil Search’s Climate of carbon costs (direct or implicit to support implementation across v Ensuring carbon price risks are the Company.Change Resilience Report for more assessedprices) when and managedmaking capital in the same information on climate change wayinvestment as any otherdecisions. financial risk. Pleasemanagement refer to and Oil Search’sanalysis. Climate v Ensuring carbon price risks are Change Resilience Report for more assessed and managed in the same information on climate change way as any other financial risk. management and analysis.

47 Appendix: Climate VaR Modelling Approach

Climate scenarios considered Aviva is developing a Climate VaR measure that enables the potential business impacts of future climate-related risks and opportunities to be assessed in each of the IPCC scenarios and in aggregate. The IPCC scenarios aim to measure the effect on the energy balance of the global climate system due to changes in the composition of the atmosphere from sources like Greenhouse gas emissions, other air pollutants19 and changes in land use. The four IPCC scenarios represent different Representative Concentration Pathways (RCPs) which describe the composition of the atmosphere at the end of the 21st century. Table 2 summarises the link between the RCPs, potential temperature rises by 2100 and the level of mitigation required, which we will use to describe the scenarios in this report.

Table 2: Mapping for RCPs, potential temperature rises and levels of mitigations. Source: TCFD.

RCP Temperature rise Description Notes RCP2.6 1.5°C Aggressive mitigation emissions halved by 2050 RCP4.5 2°C Strong mitigation emissions stabilise at half today’s levels by 2080 RCP6.0 3°C Some mitigation emissions rise to 2080 then fail Climate-related corporate reporting RCP8.5 4°C Business as usual (BAU) emissions continue rising at current rates 52 FigureAppendix: 12 also sets out implications Climate for Greenhouse gas emissions VaR and potential Modelling temperature rise by 2100 Approach for each scenario. Aggressive mitigation is the only scenario where it is more likely than not that the temperature change in 2100 will be less than 2°C. Aviva plc AvivaClimate is developing scenarios this considered Climate VaR measure in conjunction with the UNEP FI investor pilot project, which is developing models and scenario Aviva is developing a Climate VaR measure that enables the potential business impacts of future climate-related risks and opportunities to Aviva plc’s Climate-Related Financial Disclosure analysis tools to assess the potential impact on corporate assets and real estate of the four IPCC scenarios in conjunction with Carbon Delta. be assessed in each of the IPCC scenarios and in aggregate. The IPCC scenarios aim to measure the effect on the energy balance of the global 2018 climate system due to changes in the composition of the atmosphere from sources like Greenhouse gas emissions, other air pollutants19 p17 and changes in land use. The four IPCC scenarios represent different Representative Concentration Pathways (RCPs) which describe the composition of the atmosphere at the end of the 21st century. Table 2 summarises the link between the RCPs, potential temperature rises by 2100 and the level of mitigation required, which we will use to describe the scenarios in this report. What is helpful? XVIII XIX CarbonTable 2: Delta Mapping is using for RCPs, the REMIND potential model temperature from the rises Potsdam and levels Institute of mitigations. for Climate Source: Impact TCFD. Research (PIK) . Scenario outputs from the REMIND model include financial metrics such as direct/indirect emissions costs, additional capital expenditure, and revenue implications Aviva plc describes the approach to their climate value at risk measure, the scenarios they are considering, and the brokenRCP down Temperature by sector and rise geography. Description Whilst these scenarios reflectNotes current scientific research and the Paris agreement, there clearly time horizons employed. remainsRCP2.6 significant 1.5°C uncertainty regardingAggressive future mitigation climate trajectories emissions as well as halved political by risk 2050 with respect to implementation of the Paris agreement and Nationally Determined Contributions (NDCs)XX. RCP4.5 2°C Strong mitigation emissions stabilise at half today’s levels by 2080 It RCP6.0is important 3°C to note that the four Somescenarios mitigation all assume a gradual path,emissions in which rise temperaturesto 2080 then fail slowly rise but climate policy is ramped up at varying speeds with a fairly high degree of global coordination. They do not consider the transition risk in a more chaotic policy environment, RCP8.5 4°C Business as usual (BAU) emissions continue rising at current rates where there is lack of global coordination and policy action is taken too late and too suddenly. This may result in an understatement of transitionFigure 12 alsorisk. sets out implications for Greenhouse gas emissions and potential temperature rise by 2100 for each scenario. Aggressive mitigation is the only scenario where it is more likely than not that the temperature change in 2100 will be less than 2°C. The Carbon Delta model and scenario analysis tools also allow consideration of the five Shared Socioeconomic Pathways (SSPs)20. These considerAviva is developing socio-economic this Climate characteristics VaR measure including in conjunction things such with as population,the UNEP FI economicinvestor pilot growth, project, education, which is urbanisation developing models and the and rate scenario of technologicalanalysis tools development.to assess the potential impact on corporate assets and real estate of the four IPCC scenarios in conjunction with Carbon Delta.

Time horizon considered for each scenario In conjunction with the UNEP FI investor pilot project, it was agreed to use a single 15-year time horizon for the Climate VaR measure to analyse the impact of the different scenarios on our business but with the capability to consider transition effects over shorter time horizons dependingCarbon Delta on is the using business the REMIND decision model beingXVIII considered. from the Potsdam Consideration Institute was for givenClimate as Impactto whether Research a longer (PIK) timeXIX. Scenario horizon was outputs needed from to the capture theREMIND worst model physical include impacts financial of climate metrics change, such as direct/indirectthese are not likely emissions to manifest costs, themselvesadditional capital until the expenditure, second half and of the revenue century implications (See Figure 15).broken down by sector and geography. Whilst these scenarios reflect current scientific research and the Paris agreement, there clearly Toremains address significant this point uncertainty in a decision-useful regarding wayfuture and climate ensure trajectories consistency as with well the as political15-year timerisk with horizon respect for transition to implementation risk, it was of agreed the Paris to look atagreement a higher, and95th Nationally percentile Determined of physical risksContributions as well as (NDCs) the expectedXX. outcome in the BAU scenario over the 15-year horizon. Figure 16 shows largeIt is important dispersion to around note that the the mean four from scenarios the impact all assume of climate a gradual change path, on inCoastal which flooding temperatures over the slowly next rise 15 years.but climate policy is ramped up at varying speeds with a fairly high degree of global coordination. They do not consider the transition risk in a more chaotic policy environment, where there is lack of global coordination and policy action is taken too late and too suddenly. This may result in an understatement of transition risk. The Carbon Delta model and scenario analysis tools also allow consideration of the five Shared Socioeconomic Pathways (SSPs)20. These

XVIIIconsider REMIND socio-economic is a global multi-regional characteristics model incorporating includingthe economy, thethings climate such system as and population, a detailed representation economic of the energygrowth, sector. education, It allows for the urbanisationanalysis of technology and options the and rate policy of technologicalproposals for climate development. mitigation. XIX The Potsdam Institute for Climate Impact Research (PIK) is a German government-funded research institute addressing crucial scientific questions in the fields of global change, climate impacts, and sustainable development. XX Intended Nationally Determined Contributions is a term used under the United Nations Framework Convention on Climate Change for reductions in greenhouse gas emissions that all countries that signed Timethe horizon UNFCCC were considered asked to publish for in the each lead-up scenario to COP21. In conjunction with the UNEP FI investor pilot project, it was agreed to use a single 15-year time horizon for the Climate VaR measure to aviva.com Quickanalyse read the impact of the differentIntroduction scenarios on our businessRegulatory but and with market the capability1 Investor to consider expectations transition 2 effectsAppendix over A – shorterquestions time 3horizonsAppendix17 B – examples 4 Appendix C – participants 5 Appendix D – regulatory overview and company views and recommended of developing practice and process and market initiatives depending on the business decision being considered. Consideration was given as to whether a longer time horizondisclosures was needed to capture the worst physical impacts of climate change, as these are not likely to manifest themselves until the second half of the century (See Figure 15). To address this point in a decision-useful way and ensure consistency with the 15-year time horizon for transition risk, it was agreed to look at a higher, 95th percentile of physical risks as well as the expected outcome in the BAU scenario over the 15-year horizon. Figure 16 shows large dispersion around the mean from the impact of climate change on Coastal flooding over the next 15 years.

XVIII REMIND is a global multi-regional model incorporating the economy, the climate system and a detailed representation of the energy sector. It allows for the analysis of technology options and policy proposals for climate mitigation. XIX The Potsdam Institute for Climate Impact Research (PIK) is a German government-funded research institute addressing crucial scientific questions in the fields of global change, climate impacts, and sustainable development. XX Intended Nationally Determined Contributions is a term used under the United Nations Framework Convention on Climate Change for reductions in greenhouse gas emissions that all countries that signed the UNFCCC were asked to publish in the lead-up to COP21.

aviva.com 17 Climate-related corporate reporting 53 Risk management Examples

An approach is to outline the risk management process in place, or provide Swiss Reinsurance p54 information on the oversight of the Audit Committee Company Limited and and In order to help investors understand the risks and opportunities National Grid plc 55 presented by climate change including the prioritisation, An approach is to outline the risks in relation to key specific assets or Diageo plc and p56 likelihood and impact, what scenarios might affect the benchmarked results and changes made Johnson Matthey plc and company’s sustainability and viability, and how the company is 57 responding, companies should ask themselves… An approach is to refer to signposts being monitored, with indicators and Bloomberg L.P. p58 reference to future strategic decisions • Wha t oversight does the board have of climate-related opportunities and risks? + • What systems and processes are in place for identifying, assessing and managing An approach is to outline asset-based outcomes referring to specific Oil Search Limited and p60- climate-related risks? To what extent can current processes be developed to scenarios, including NPV-related results under which the scenarios may Rio Tinto plc 61 and assist? + make certain investments less attractive, and modelling to a 1.5 degree 62-63 scenario, or a description of the scenarios and impacts on key areas (in this • How will transitional and physical risks affect the company? + circumstance related to commodity impacts) • How is a consideration of climate-related issues integrated into the risk management process and connected to other related risks? One approach is to refer to climate-related impacts in the viability Royal Dutch Shell plc p64 statement disclosure • Over what horizons have the risks been considered and risk assessments carried out? • How are the risks from climate change being monitored, including decisions One approach is to refer to what type of expertise has been gathered when Royal Dutch Shell plc p38 specific external expertise has been sought around mitigation, transfer, acceptance and control? + • How is the assessment of the company’s viability over the longer-term taking into account climate-related issues? One approach is to refer to assumptions made and the impact of different Unilever PLC p39 scenarios • Is the company’s business and business model viable? What signals or leading indicators might encourage a reconsideration of this assessment and the related strategy, or an understanding of whether the risk mitigation activities are being achieved? • If the company is undertaking scenario analysis, how did the company decide on TCFD expects companies to: which scenarios to use and what assumptions have been made? How do these Disclose how the organisation identifies, assesses, and manages climate-related risks relate to the outcomes advocated in the Paris Agreement? • Describe the organisation’s processes for identifying and assessing climate-related risks • Are the scenarios sufficiently diverse and challenging? • Describe the organisation’s processes for managing climate-related risks • How did the company translate scenarios to operational/financial models? • Describe how processes for identifying, assessing, and managing climate-related risks are integrated

• How is the scenario analysis used in strategic planning? into the organisation’s overall risk management

+ notes where the questions align with expectations for reporting in the TCFD’s ‘Guidance for all sectors’

Corporate responsibility We have an internal property risk Corporate responsibility Climate strategy Corporate responsibility modelling team that builds, maintains Climate risk and updates sophisticated models for all relevant natural catastrophe risks (flood, tropical cyclones, wind storms, Climate-related opportunities You can read about our involvement in Infrastructure renewablesearthquakes). The models are basedWe have on an internal property risk management modelling team that builds, maintains currentWe have scientific an internal knowledge property and risk are Climate change does not just create some new offshore wind farm projects For our infrastructure loan mandates, we and updates sophisticated models risks, it also presents companies with as well as a pioneering solar revenue work with best-in-classregularlymodelling managers updated team to thatto include builds, new maintainsfor all relevant natural catastrophe risks new opportunities. TheDevelopingClimate processes such put we in our use 2018risk Corporateto identify, Responsibility gain access to andscientific investand updates in findings renewable sophisticated – including models from(flood, our tropical cyclones, wind storms, products and services has long formed Report, pages 24–25. energy projects thatresearchfor reflect all relevant collaborations our risk natural catastrophewith academicearthquakes). risks The models are based on one of the four pillars of our climate appetite, provide attractiveinstitutions(flood, tropical long-term –, and cyclones, to make windusecurrent of storms, scientific knowledge and are assess and manage climate-related risks regularly updated to include new strategy. With these offerings we pursue Opportunities for our investments returns and help buildadvancesearthquakes). a more in sustainablecomputing The models capabilities. are based on managementOpportunities for our investments returns and help build a more sustainable scientific findings – including from our two different but complementaryare integrated The into consistent our and risk broad-based management, energy supply for Usingthecurrent future. statistical scientific Renewables data knowledge spanning researchand are collaborations with academic objectives: mitigationunderwriting of climate change andintegration asset of environmental, management. social make up approximately100regularlyyears, 20% updated ourof our models to include are capable institutionsnew of –, and to make use of and adaptation to someThe of its processes effects. and wegovernance use (ESG) to identify,factors in the infrastructure portfolio,simulatingscientific whereof probabilisticfindings 65% – are including “daughter”advances from our in computing capabilities. investment process is expected to in solar panels andevents 35%research inthat wind collaborations may farms. have never with occurred Usingacademic statistical in data spanning realityinstitutions but that –, may and occurto make in theuse100 future.ofyears, our models are capable of Opportunities relatedassess to physical and manageimprove the risk/return climate-related relationship risks simulating probabilistic “daughter” risks in our re/insurance business particularly over the longer term. Real estate events that may have never occurred in Since most of our re/insuranceare integrated contracts We into consider our sustainability risk management, risks, such For investment realSwiss estate Re’s in full, proprietary integratedreality but that may occur in the future. are renewed on an annualunderwriting basis, we as and climate asset change, in management. our investment Switzerland, we applyrisk model the following is an important tool for can offer our clients effective natural process to make the portfolio more sustainabilitySound criteria: riskmanaging management, analysis the of business:underwriting energy we useSwiss it to Re’s full, proprietary integrated and asset management lie at the core risk model is an important tool for catastrophe protection that helps resilient against financial market sources as a percentagedetermine of market the economic capital required of the re/insuranceto support business. the risks This on our booksmanaging as the business: we use it to them cope with current climate risks. shocks. This is all the more important value and MINERGIE®enables us to use certifications. our existing processes determine the economic capital required well as to allocate risk-taking capacity to The same applies to our weather as such risk factors are not yet MINERGIE®and is instruments a Swiss sustainability to address climate- to support the risks on our books as Sound risk management, underwriting the different lines of business. insurance solutions. considered as fully reflected in label for newrelated and risks. refurbished buildings. well as to allocate risk-taking capacity to and asset management lie at the core current market valuations. By the end of 2018, the combined the different lines of business. of the re/insurance business. This PhysicalTransition risks risks in our In addition, we undertake special efforts value of our MINERGIE®-certified enables us to use our existing processesTo assess re/insurance our P&C businesses business accurately Transition risks in our to help expand re/insurance protection, The transition to a low-carbon economy buildings reached USD 0.4 billion, or and instruments to address climate-and to structureTo ensure sound appropriate risk transfer management re/insurance of business by focusing on non-traditional clients also creates opportunities for specific 23% of oursolutions, Swiss portfolio we need toof clearly direct understand To ensure appropriate management of related risks. transition risks, we have set up an annual (in particular from the public sector), asset classes: real estate theinvestments economic impact by value, of natural transition risks, we have set up an annual catastrophesmonitoring and the potentialsystem thateffect combines underdeveloped markets and innovative which corresponds to a gross floor monitoring system that combines Physical risks of climateexpertise change on in their risk frequency management, expertise casualty in risk management, casualty risk transfer instruments. You can read Green bonds area of 82497 m2. Green bonds To assess our P&C businessesarea of accurately 82497and severity. m2. underwriting and relevant legislationunderwriting and relevant legislation about some innovative transactions we Green bond proceeds are used to Green bond proceedsand are to used structure to sound risk transfer to understand the developmentsto understand in the the developments in the have recently completed in our 2018 exclusively finance environmentally In the US, ourNatural approach catastrophes to sustainability constitute one of US market, in particular, and to assess exclusively finance environmentallysolutions, we need to clearlyIn the understand US, our approach US market, to sustainability in particular, and to assess Corporate Responsibility Report, sustainable projects that address key includes somethe core of the risks most modelled recognised in Swiss Re’s any potential impacts on our business. the economic impact of natural risk landscape.any potential Specifically, impacts they are on one our business.An underwriting guideline regulates the areas of concern including climate certificates and guidelines, such as catastrophes and the potential effectof three categoriesAn underwriting in which weguideline classify regulateslimits and the triggers for the more exposed change, but also naturalof climate resources change on their“GreenGuide: frequencyand Sustainablemodellimits our P&Cand Property re/insurance triggers for risks the moretypes exposed of risks. Any deviation from the depletion, loss of biodiversityand severity. and/or Operations”,(the a otherbest-practicetypes two being of risks. man-madeguideline Any deviation andfor fromguideline the must be discussed and risks in our re/insurance business pollution control. With the movement sustainablegeopolitical and efficientguideline risks). real These must estate risks be discussedarise from anddocumented in the underwriting file. While Swiss Re is active in all types towards a low-carbon economy, the operations;the and coverage the LEED we provide certification to our clients of Corporate responsibility Natural catastrophes constitute onefor of property, documented liability, motor, in the accident underwriting For file.the other types of transition risks green bond market saw an impressive the US Green Building Council (USGBC). of renewable energy re/insurance, we green bond market sawthe corean impressive risks modelled in Swiss Re’splus specialty risks. described on page 180 we also have have recently become recognised as increase from about riskUSD landscape. 11 billion Specifically, they are one For the other types of transitionrisk risks management systems in place. 2 a lead market for offshore wind risks. in 2013 to USD 167of billion three in categories 20182. in which we classify described on page 180 we alsoTechnological have developments are Swiss Re Corporate Solutions has Currently, the marketand shows model an ourannual P&C re/insurance risks risk management systems in place.monitored through Swiss Re’s respective underwriting units and pricing of continuously built up and refined the growth rate of more (thethan other 70%, two with being man-made and Technological developments are a growing variety of issuers besides associated covers is reviewed on an technical expertise required to a growing variety of geopoliticalissuers besides risks). These risks arise from monitored through Swiss Re’s annualrespective basis. Climateunderstand risk and manage these risks supranationals, sovereignsthe coverage and agencies we provide to our clients underwriting units and pricing of and, in 2015, opened a Centre of (SSA). In 2018, we achievedfor property, our liability,target motor, accident associated covers is reviewed on an Competence for Wind Power in of having a green bondplus portfolio specialty worth risks. annual basis. managementCopenhagen. Over the next decade, at least USD 1.5 billion. we expect many new development opportunities to arise, which will create demand for re/insurance protection The processesin numerouswe use business to identify,lines (credit, assess and manageengineering, climate-relatedproperty, liability, etc). risks are integrated into our risk management, underwriting and asset management. 100 years, our models are capable of 182simulatingSwiss Re 2018probabilistic Financial Report “daughter” Quick read Introduction Regulatoryevents that and may market have never1 occurredInvestor inexpectations 2 Appendix A – questions 3 Appendix B – examples 4 Appendix C – participants 5 Appendix D – regulatory overviewreality but that may occur in theand future. company views and recommended of developing practice and process and market initiatives disclosures Sound risk management, underwriting Swiss Re’s full, proprietary integrated and asset management lie at the core risk model is an important tool for 182 Swiss Re 2018 Financial Report of the re/insurance business. This managing the business: we use it to enables us to use our existing processes determine the economic capital required 2 "The Green Bond Chartbook",and UniCredit,instruments 1 February to address 2019. climate- to support the risks on our books as related risks. well as to allocate risk-taking capacity to the different lines of business. Physical risks 182 Swiss Re 2018 Financial Report 180 Swiss Re 2018 FinancialTo assess Report our P&C businesses accurately Transition risks in our and to structure sound risk transfer re/insurance business solutions, we need to clearly understand To ensure appropriate management of the economic impact of natural transition risks, we have set up an annual catastrophes and the potential effect monitoring system that combines of climate change on their frequency expertise in risk management, casualty and severity. underwriting and relevant legislation to understand the developments in the Natural catastrophes constitute one of US market, in particular, and to assess the core risks modelled in Swiss Re’s any potential impacts on our business. risk landscape. Specifically, they are one An underwriting guideline regulates the of three categories in which we classify limits and triggers for the more exposed and model our P&C re/insurance risks types of risks. Any deviation from the (the other two being man-made and guideline must be discussed and geopolitical risks). These risks arise from documented in the underwriting file. the coverage we provide to our clients for property, liability, motor, accident For the other types of transition risks plus specialty risks. described on page 180 we also have risk management systems in place. Technological developments are monitored through Swiss Re’s respective underwriting units and pricing of associated covers is reviewed on an annual basis.

182 Swiss Re 2018 Financial Report National Grid Annual Report and Accounts 2018/19 Strategic Report | Our commitment to being a responsible business

Our environmental sustainability Environmental Sustainability of our offices targets and progress sustainability In 2018, as our strategy continued to evolve, we took steps to improve the sustainability 1. Reduce carbon footprint of our offices. In the UK, we completed many The biggest impact we can have on the Greenhouse gas emissions (Scope 1 energy and water efficiency projects and environment is in our role of enabling the and 2 million tonnes of CO2 equivalent) achieved energy reductions in our offices transition to a low-carbon future. We also of 9%. 9 0 know we have the potential to affect the National Grid Annual Report and Accounts 2018/19 Corporate Governance | Audit Committee environment directly, both positively and 8 8 We are making progress on better ways of negatively, through our operations. managing our office waste, including working with our supply chain to prevent waste being Our approach to environmental sustainability generated. For example, we have pledged to is to manage our risks, whether short-term eliminate single-use plastic from sale in our 0 through our physical operations, such as air 80 offices by 2020, and have already taken steps quality and pollution, or long-term through our to remove plastic cutlery, straws, stirrers and greenhouse gas emissions and resource use. cups at our UK headquarters in Warwick. At the same time, we look for opportunities 17/18 18/19 2030 2050 We have also developed an engagement to have a positive impact. For example, we Significant issues relating to the financial statements required to address those issues in the financial statements. campaign called ‘Save Evie’s Whale’, to help have committed to achieve a net gain in The significant issues considered relating to the financial statements (reduction from a 1990 baseline) usIn consideringimprove our the approach financial to recycling. results announcements and the financial environmental value for all our major results contained in the Annual Report and Accounts, the Committee for the year ended 31 March 2019 are set out in the following table, construction projects by 2020. We measure together with a summary of the financial outcomes where appropriate. 2. Maximise resources Climatereviewed changethe significant issues and judgements made by management this with an evaluation approach based on a in determining those results. The Committee reviewed papers % reduction in the volume of waste In addition, the Committee and the external auditors have discussed the that is sent to landfill (UK offices) methodology set out by the UK Government. Weprepared support by climatemanagement change setting science. out the key areas of risk, the actions Reducingundertaken greenhouse to quantify gasthe effectsemissions of the is anrelevant issues and the significant issues addressed by the Committee during the year. You can 100 As well as managing normal operating risk, importantjudgements area made of focus by management for us and ison one the of appropriate accounting read more about the Independent Auditor’s Report on pages 93 – 102. 91 we manage the risk of an environmental event our KPIs. arising from a catastrophic asset failure. You 2 can find out more about this on page 21. AsSignificant a result, issueswe also considered support the Paris Agreementby the Committee and have made our own How the Committee addressed the issues Our strategy and priorities commitment to reduce our greenhouse gas emissionsInternal control by over 70% financial by 2030 reporting and 80% by We have continued to focus on financial controls and received specific updates from management at Our environmental strategy, Our Contribution, our September, March and May meetings. These updates focused on the IT control weaknesses reported National Grid Annual Report and Accounts 2018/19 Corporate2050. Governance This pledge aligns with the trajectory was originally developed in 2012 with a wide last year, where we made good progress in implementing and executing new controls. We challenged required to limit global warming to a 2˚C range of internal and external stakeholders. management and were satisfied with the plans in place to close the remaining items. Concerning the temperature rise. We are currently reviewing broader financial control environment, a three-year Group controls roadmap has been established, 17/18 18/19 2020 NationalOver Grid the Annual years Report we andhave Accounts refined 2018/19 our strategyCorporate to Governance Climate-relatedAudit corporate Committee reporting our targets against limiting this rise to 1.5˚C setting out initiatives to strengthen and improve controls significantly and KPIs to assess progress. reflect changing priorities. It focuses on three 55 and will update investors in next year’s 3. Responsible land use main areas: climate change, resources and Annual Report and Accounts. After careful consideration, the Committee concurred with management’s overall assessment that the Number of sites enhanced Auditcaring for the Committee natural environment. Group’s internal control over financial reporting is effective. National Grid Annual Report and Accounts 2018/19 Corporate Governance Task Force on Climate-related Our strategy is delivered through our Application of the Group’s exceptional items The Committee considered papers from management at eachNational of the meetings in theGrid year, whichplc set out 50 environmental policies. We focus on: Financial Disclosures (TCFD) Audit Committee “This frameworkyear, we to certaincontinued events in the periodNew accountingkey considerations standards to the application of the exceptional items framework in relation to a number of specific • reducing our carbon footprint; The TCFD’s voluntary framework for transactions in the year including, but not limited to, the MassachusettsAnnual gas Report labour dispute and andAccounts workforce 2018/19 our focusdisclosure on of climate-relatedinternal informationThe Committee contingency received plan,periodic the UKupdates and US cost efficiency programme, certain legal settlements, and the impairments 0 • maximising the value of resources through“This in financialyear, we filings continued is structured aroundNewon the accounting impactof UK of adoption nuclearstandards connectionof IFRS 16 (leases)assets. In each case, the Committeep41, assessed 58, the 59 appropriateness of the re-use and recycling, so we can reduce controls relating to which is effectivejudgements next year. reached Reviews (which of theare set out further in Note 5 to the financial statements), individually in relation four themes: governance, strategy, riskimpactThe Committee of IFRS 15 received (revenue periodic from contracts updates our impact on the environment; and our focusmanagement, on internal and metrics and targets. to the specific events and circumstances, and also in aggregate, considering the overall composition of financial reporting and withon the customers) impactthe adjusted of andadoption IFRS profit 9of (financial IFRS and 16the (leases) associated disclosures in Note 5. • using our land holdings in ways that benefit instruments)which is effective were next undertaken year. Reviews in 2017/18. of the controls relating to New accounting standards our business, the environment and the “Thisreceived Weyear, have several wecommitted continued updates to implementing Thisimpact the year, of IFRStheThe Committee 15 Committee (revenue considered from also paidcontracts closethe consideration to the classification of two items that were not treated as communities in which we live and work. financialTCFD’s reporting recommendations, and demonstratingeffectivenessThewith Committeecustomers) exceptional. of receivedtheand changes IFRS Firstly,periodic 9 (financial to theprocesses, updates Committee considered the classificationWhat of £95 million is ofhelpful? income from two legal fromour focus management on internal and instruments) were undertaken in 2017/18. 17/18 18/19 2020 how climate change risk and opportunitiescontrolson the impact and settlements.systems of adoption implemented In of concluding IFRS 16 in (leases) that it remained appropriate to classify these within adjusted profit, the Committee received several updates This year, the Committee considered the controlsform part relating of our business, to with clearthe period.which targets is effectivespecifically next year. noted Reviews the precedent of the set by the previous classificationNational of costs toGrid which describes the settlements the audit related. committee’s involvement in These efforts are underpinned by maintainingDeloitte at each meeting.” impacteffectiveness of IFRS of 15 the (revenue changes from to processes, contracts Actual Target fromto measure management progress. and the topic of climate change, increasing reliability. high environmental management standards.financial reporting and Climate-relatedwithcontrols customers) and Secondly,systems and financial IFRS implemented the 9Committee (financialdisclosures in considered the treatment of sales by the UK Property business to the St William JV In 2018 we developed an internal the period. Deloitte at each meeting.” Weinstruments) have continued andwere noted undertaken to make that such good in transactions2017/18. progress are part of the Group’s ordinary course of business. Environmental Sustainability Business receivedOur disclosure several is set updates out on pages 210This – year,211, the Committee considered the Climate-relatedwith the recommendations financial set disclosures out by the Management Standard (BMS) that brings demonstrating how we are managingTaskeffectiveness our Force on of Climate-related the changes to Financial processes, Alignment to SDGs fromMark WilliamsonclimateClassification management impact of and the how Group’s and our businessretainedcontrols is and Atsystems the September implemented meeting, in the Committee specifically considered a proposal from management to classify together the commitments from Our interests in UK Gas Distribution DisclosureWe have continued (TCFD).the retained Into the make interestsyear, good the inprogressCommittee UK Gas Distribution (all of which are subject to the Further Acquisition Agreement Committee Chair withthe period. the recommendations set out by the Ensure access to Contribution and our Environmental Policy, Deloitteevolving at ineach response meeting.” to the risks andwas presentedand with Remaining a roadmap Acquisition to progress Agreement) as a discontinued operation. The Committee concurred with providing clarity to all our employees on Mark Williamsonopportunities we see arising. We aimtowardsTask to Force full oncompliancemanagement Climate-related of thatTCFD Financialit wasand appropriate to consider the ultimate exit of these interests as part of a single affordable, reliable, Climate-related financial disclosures sustainable and modern the standards we expect. It also brings Committeepublish Chair a full disclosure in 2020 as ourdiscussedDisclosure the(TCFD).co current-ordinated In the gap year, plan analysis. theto exit Committee We the UK Gas Distribution business, which began in 2015. National Grid Annual Report and Accounts 2018/19 Corporate energyGovernance for all sustainability fully into our environmental understanding and strategy evolves.noted thatWewas have presented continued focus with in the toa roadmapmake next 12good months to progress would bewithtowards the recommendationsfull on compliance performing ofscenario TCFDset out and analysis by the Changesmanagement to Committee systems. composition: Review of the year discussed the current gap analysis. We Mark WilliamsonCDP A list as regardsTask Force theon Climate-relatedcontinuing viability Financial of our • Amanda Mesler joined May 2018. The Committee2018/19 met other four times key duringareas the of yearfocus variousDisclosurenoted that businesses focus(TCFD). in Intheunder the next year, various 12 themonths futureCommittee Audit Committee Ensure sustainable toCommittee undertake itsChair role in the governance of the consumption and ChangesThe Executive to Committee Committee composition: will review and Review ofCDP the is year a not-for-profit charity that runsenvironmentalwaswould be presented on performing and with regulatory a roadmap scenario scenarios, to analysisprogress Keyapprove changes focus areas in 2018/19: to the BMS periodically,Group’s financial reporting, internal risk as regards the continuing viability of our production patterns • Amanda Mesler joined May 2018. The Committeea globalArea of met focus disclosure four times systemduring the for year investors, the linktowards to full our complianceMatters risk registers, considered of TCFD and ensuringand • Internalincluding controls any strategies, relating to plans and targetsmanagement, companies, control and cities, assurance states and regionsthe rightdiscussedvarious to businesses metrics the current and targets under gap various analysis. were futuredeveloped. We processes,to undertake and its therole externalin the governance audit. of the environmental and regulatory scenarios, Keyfinancial reporting,within focus the areas BMS, in ensuring2018/19:specifically it ITfully related; reflects theGroup’s financialmanageFinancial reporting, their reporting environmental internal and financialrisk impacts. resultsnoted that We of focus• Specific in the nextconsideration 12 months of the financial review and the degree to which this appropriately reflects statutory Lookingwould bethe link to forwardonour performing risk registers, scenario and ensuring analysis •Changes Applicationrisks and to opportunitiesCommittee of the Group’s composition: exceptional associated with Continuedmanagement,Review ofare onethe the focus business control year of on 126 andinternal – includingcompanies assurance control through globally, over the and use oneof versus non-IFRS performance measures, with supporting definitions, explanations as to the relevance Take urgent action • Internal controls relating to as regardsthe right metrics the continuing and targets viability were ofdeveloped. our • itemsAmandaenvironmental framework; Mesler joinedsustainability. and May 2018. The Safety, financialTheprocesses, Committeeof onlynon-IFRS reporting and metthe eight external measuresfour UK times companies audit. during the to year achieve Internal a controlsand importancerelating to of these measures, and reconciliations to IFRS metrics as necessary; to combat climate Newfinancial accounting reporting, standards specifically IT related; various businesses under various future “This year, we continued • ImpactEnvironment of new accountingand Health standards. Committee tracks,to undertake its role in the governance of the financial reporting• Updates on the impact of the adoption of IFRS 16 (leases) and consideration of the effectiveness of change and its impacts • Application of the Group’s exceptional This year,position we continued on the climate our focus on change internal A listenvironmentalLooking (out of forward and regulatory scenarios, KeyThe Committeefocus areas received in 2018/19: periodic updates Group’sContinued financial focus reporting, on internal internal control risk over changes to processes and controls following the implementation of IFRS 15 (revenue from contracts our focus on internal itemschallenges framework; and andseeks assurance of the controls relating7,000 submissions). to financial reporting We were and delightedInternalthe linkThe toCommittee to controls our risk will registers, relatingremain focused andto ensuring on on the impact of adoption of IFRS 16 (leases) management,financial reporting control and assurance with customers) and IFRS 9 (financial instruments); Key• Internaldelivery focus controls areasof the inplansrelating 2019/20: approved to by the received achieveseveral updates this accolade from management for the third consecutivefinancialthe rightensuring metricsthat reporting management and targets delivers were developed. the controls relating to •whichImpact is effective of new accountingnext year. Reviews standards. of the processes, and the external audit. planned internal control improvements •impact InternalfinancialExecutive of IFRScontrols reporting, Committee. 15 (revenuerelating specifically tofrom contractsIT related; andThis Deloitteyear,year. we at continued It iseach clear meeting. our recognition focus These on updatesinternal of our efforts to • Monitored and reviewed the integrity of the Group’s financial information and other formal documents controls relating to financial reporting and in respectThe Committee of IT controls. will remain focused on Sustainably manage •withfinancial reporting;Application customers) of andthe Group’sIFRS 9 (financial exceptional focused onreduce the IT ourcontrol emissions weaknesses and mitigate climateLooking forwardrelating to its financial performance, including the appropriateness of accounting policies and going financial reporting and Key focus areas in 2019/20: receivedContinued several focus updates on internal from management control over ensuring that managementconcern; delivers the forests, combat •instruments) Cyberitems framework; security; were undertaken and in 2017/18. highlightedchange last year, during and I 2018/19.am pleased to see plannedInternal internalcontrols control relating improvements to desertification, halt • Internal controls relating to progressandfinancial Deloitte continues reporting at each to meeting. be made These in updates Cyber security and scorecard received several updates •This TaskImpact year, Force ofthe new Committeeon Climate-relatedaccounting considered standards. the in respectfinancial reportingof •IT Approved controls. the key accounting judgements made by management; and reverse land effectivenessfinancial reporting; of the changes to processes, implementingThisfocused year, on we the continuedand IT controlexecuting our weaknesses focus new controls,on internal Cyber security risk will remain at the top from management and Financial Disclosure (TCFD); and controlshighlighted relating last year, to financial and I am reporting pleased and to see The Committee• Considered will remain thefocused approval on process for confirming and recommending to the Board that the 2018/19 degradation and •controlsCyber andsecurity; systems implemented in including a significantly strengthened IT Cyberof the agenda security for andthe Committee.scorecard Key focus areas in 2019/20: receivedprogress severalcontinues updates to be frommade management in ensuring that managementAnnual Report delivers is fair, balancedthe and understandable; halt biodiversity loss •the period. NewTask UKForce financial on Climate-related record system. infrastructure environment. We have Deloitte at each meeting.” • Internal controls relating to consideredandimplementing Deloitte the at and eachimpact executing meeting. of these new These on controls, the updates NewCyberplanned UK security internal financial• Reviewedrisk control willsystem remain improvements and recommended at the top to the Board the approval of the 2018/19 Annual Report and Accounts Financial Disclosure (TCFD); and including a significantly strengthened IT of the agendain respect of IT for controls. the Committee. CompositionClimate-relatedfinancial reporting; of thefinancial Audit disclosuresCommittee year-endfocused on attestation the IT control relating weaknesses to the The Committeeand other plans to receivereports filedupdates with the SEC containing financial statements; • New UK financial record system. effectivenesshighlightedinfrastructure last ofenvironment. year,internal and controls I am We pleased have in respect to see Further reading In•We accordanceCyber have security;continued with theto make Code good and DTRprogress 7.1, Cyberin September security• andReviewed and November scorecard any significant in respect issues and recommended approval of the preliminary results of financialprogressconsidered continues reportingthe impact to required beof thesemade under onin the the New UK financialannouncements; and system KPIs, pages 16 – 19 the BoardComposition•withTask the Force recommendations is satisfied on of Climate-related the thatAudit all set Committeemembers out by the of the year-end attestation relating to the of the implementation of a new system TCFD, pages 210 – 211 Committee have recent and relevant financial Sarbanes-Oxleyimplementing and Act executing 2002 (SOX). new You cancontrols, read of financialTheCyber Committee security record risk plans in will the to remain UKreceive business at updatesthe top Mark Williamson Task ForceFinancial on Disclosure Climate-related (TCFD); Financialand moreincludingeffectiveness about a significantly these of internal significant strengthenedcontrols issues in respect on IT the of the agenda• forIn addition, the Committee. although there were no significant changes or developments in the year, the Committee also Environmental performance, page 18 experienceIn accordance and with that the Mark Code Williamson, and DTR as 7.1, a (scheduled toin September andbecomeconcurred November progressively with inmanagement’s respect assessment that the valuation of the Group’s defined benefit scheme Committee Chair •DisclosureNew UK (TCFD).financial In record the year, system. the Committee followinginfrastructureof financial pages. reporting environment. required We under have the charteredthe Board accountant,is satisfied that having all members been Chief of the operationalof the implementation throughpension 2019/20). of liabilities a new systemand cash flows forecasts associated with environmental provisions continue to be was presented with a roadmap to progress consideredSarbanes-Oxley the impact Act 2002 of these (SOX). on You can the read New UK financial system FinancialCommitteetowards full Officer havecompliance atrecent International andof TCFD relevant Power and financial plc, of financial recordconsidered in the UK significant business estimates in the context of the Group’s financial statements. experienceComposition and of that the Mark Audit Williamson, Committee as a Inmoreyear-end September about attestation these 2018 significant and relating March toissues the2019, on the the (scheduled to become progressively anddiscussed chairman the ofcurrent the audit gap committee analysis. We at Alent following pages. The Committee41 plans to receive updates plc,Inchartered accordance is suitably accountant, qualified.with the havingCode The Board andbeen DTR isChief also 7.1, Groupeffectiveness Chief Information of internal controlsand Digital in respect Officer in Septemberoperational through and November 2019/20). in respect noted that focus in the next 12 months attendedof financial Taskto reporting discuss Force ITrequired on controls Climate-related under in more the detail. Financial • Reviewed management’s paper commenting on the continued progress to date, the roadmap for the satisfiedthe BoardFinancialwould be that Officeron is satisfiedperformingwhen at Internationalconsidered that scenario all members as Power analysisa whole, ofplc, the of the implementation of a new system Changes to Committee composition: Review of the year and chairman of the audit committee at Alent InSarbanes-Oxley MarchSeptember Disclosure2019, 2018 cyber Act and 2002 (TCFD)risk March governance(SOX). 2019, You can the was read next 12 months and key priorities as described on pages 210 – 211; theCommitteeas regards Committee thehave continuinghas recent competence and viability relevant relevant of ourfinancial to Group Chief Information and Digital Officer of financial record in the UK business • Amanda Mesler joined May 2018. The Committee met four times during the year theexperienceplc, sectoris suitably in and which qualified. that the Mark Company The Williamson, Board operates is alsoas a discussedmore about in more these significantdetail, including issues a on more the (scheduled to• becomeReview of progressively disclosures; and various businesses under various future in-depthfollowingattended analysispages.to discuss of theIT controls cyber risk in moreaudit detail. to undertake its role in the governance of the (includingcharteredsatisfiedenvironmental that utilities,accountant, when and finance regulatoryconsidered having and scenarios, beenengineering) as a Chiefwhole, to operational through 2019/20). the Committee has competence relevant to planIn March and additional2019, cyber insight risk governance from a newly was • The Committee discussed the linkage between the work being undertaken on understanding the full Key focus areas in 2018/19: Group’s financial reporting, internal risk ensureFinancialthe link theto Officer our right risk balanceat registers, International of skills, and Powerensuring experience, plc, Mark Williamsoneffects of the Company’s Total Societal Impact and how this related to other internal scenario planning management, control and assurance the sector in which the Company operates commissionedIndiscussed September in more 2018 independent detail, and March including external 2019, a morereview.the • Internal controls relating to professionalandthe right chairman metrics qualifications of theand targets audit committeeand were knowledge. developed. at Alent in-depth analysis of the cyber risk audit Committee Chairand external reporting. processes, and the external audit. plc,(including is suitably utilities, qualified. finance The and Board engineering) is also to IGroup was pleased Chief Information to hear that and the Digital plan had Officer been financial reporting, specifically IT related; substantiallyattendedplan and additionalto discuss delivered, insight IT controlsin line from with ina newlymorethe detail. ThesatisfiedensureLooking Committee the that forward right when members’balance considered of biographiesskills, as experience, a whole, are Mark Williamson • Application of the Group’s exceptional Continued focus on internal control over professional qualifications and knowledge. Committee’sIncommissioned March 2019, expectations, independentcyber risk governance and external that the review. was Committee Chair on pagesthe Committee 48 – 49.has competence relevant to I was pleased to hear that the plan had been items framework; and financial reporting theInternal sector controls in which relatingthe Company to operates externaldiscussed assessment in more detail, of our including cyber risk a more financial reporting coveragein-depthsubstantially analysis concluded delivered, of the it was incyber line comprehensive, withrisk auditthe • Impact of new accounting standards. This year, we continued our focus on internal (includingThe Committee utilities, members’ finance and biographies engineering) are to on pagesThe Committee 48 – 49. will remain focused on andplanCommittee’s didand not identify additional expectations, insightany significant fromand thata newly gaps the in our controls relating to financial reporting and ensure the right balance of skills, experience, external assessment of our cyber risk Mark Williamson Key focus areas in 2019/20: professionalensuring that qualifications management and delivers knowledge. the internalcommissioned IT assurance independent activity externalconducted review. Committee Chair received several updates from management by InternalIcoverage was pleased concluded Audit. to hear it that was the comprehensive, plan had been • Internal controls relating to and Deloitte at each meeting. These updates planned internal control improvements in respect of IT controls. substantiallyand did not identify delivered, any in significant line with thegaps in our financial reporting; focused on the IT control weaknesses QuickThe Committee read members’ biographiesIntroduction are internal IT assuranceRegulatory activity and conducted market Investor expectations Appendix A – questions Appendix B – examples Appendix C – participants Appendix D – regulatory on pagesFurther 48 – 49. reading Committee’s expectations, and that the 1 2 3 4 5 • Cyber security; highlighted last year, and I am pleased to see externalby Internal assessment Audit.overview of our cyber risk and company views and recommended of developing practice and process 59 and market initiatives progress continues to be made in Cyber securityYou can viewand thescorecard Committee’s • Task Force on Climate-related Terms of Reference here: coverage concluded it was comprehensive, disclosures implementing and executing new controls, Cyber securitywww.nationalgrid.com risk will remain at the top and did not identify any significant gaps in our Financial Disclosure (TCFD); and including a significantly strengthened IT Further reading of the agendaYou can for view the theCommittee. Committee’s internal IT assurance activity conducted • New UK financial record system. infrastructure environment. We have Terms of Reference here: by Internal Audit. considered the impact of these on the TheNew Statutory UK www.nationalgrid.comfinancial Audit Services system for Composition of the Audit Committee year-end attestation relating to the Large Companies Market Investigation (MandatoryThe CommitteeFurther Use of plans Competitivereading to receive updates In accordance with the Code and DTR 7.1, effectiveness of internal controls in respect Tender Processesin September and and November Audit Committee in respect of financial reporting required under the The StatutoryYou Auditcan view Services the Committee’s for the Board is satisfied that all members of the Large CompaniesResponsibilities)of the implementationTerms Orderof Market Reference 2014 of Investigation a– newstatementhere: system Committee have recent and relevant financial Sarbanes-Oxley Act 2002 (SOX). You can read (Mandatoryofof financial compliance:www.nationalgrid.com Use record of Competitive in the UK business experience and that Mark Williamson, as a more about these significant issues on the Tender Processes(scheduled to become and Audit progressively Committee chartered accountant, having been Chief following pages. Responsibilities)Theoperational Company through confirms Order 2019/20).2014 that it– compliedstatement ofwithThe compliance: Statutorythe provisions Audit of Services the Competition for and Financial Officer at International Power plc, MarketsLarge Companies Authority’s Market Order Investigationfor the financial and chairman of the audit committee at Alent In September 2018 and March 2019, the Theyear under(Mandatory Company review. Use confirms of Competitive that it complied plc, is suitably qualified. The Board is also Group Chief Information and Digital Officer Tender Processes and Audit Committee attended to discuss IT controls in more detail. with the provisions of the Competition and satisfied that when considered as a whole, MarketsResponsibilities) Authority’s Order Order 2014 for – the statement financial In March 2019, cyber risk governance was of compliance: the Committee has competence relevant to 58year under review. the sector in which the Company operates discussed in more detail, including a more (including utilities, finance and engineering) to in-depth analysis of the cyber risk audit The Company confirms that it complied plan and additional insight from a newly with the provisions of the Competition and ensure the right balance of skills, experience, 58MarketsMark Williamson Authority’s Order for the financial professional qualifications and knowledge. commissioned independent external review. Committee Chair I was pleased to hear that the plan had been year under review. The Committee members’ biographies are substantially delivered, in line with the on pages 48 – 49. Committee’s expectations, and that the external assessment of our cyber risk 58 coverage concluded it was comprehensive, and did not identify any significant gaps in our internal IT assurance activity conducted by Internal Audit.

Further reading You can view the Committee’s Terms of Reference here: www.nationalgrid.com

The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014 – statement of compliance:

The Company confirms that it complied with the provisions of the Competition and Markets Authority’s Order for the financial year under review.

58 DIAGEO ANNUAL REPORT 2019 15 DIAGEO ANNUAL REPORT 2019 21 STRATEGIC REPORT STRATEGIC REPORT consumers to our iconic Johnnie Walker of long-term thinking and of earning the trust cyber security, data management and oversight is provided by our global Scotch brand and to the category, with social and respect of those around us. Our future – and aligning our short-, medium- and migration risks, data privacy risk, compliance team which undertakes media and e-commerce playing a part success depends on us continuing to long-term outlook on climate risk with environmental and climate risk, Brexit regular reviews on the effectiveness of (see more on page 17). Technology and promote positive drinking, fostering the business’s principal risk time and trade war risks and discrimination the programme. e-commerce are also changing the route to inclusive economic growth and reducing horizons. and harassment. We encourage our employees, and anyone market. They are shifting the retail landscape, our environmental impacts, while making This Annual Report contains additional Potential emerging risks are also a key we do business with, to raise concerns about our interactions with on-trade and off-trade sure we do business with integrity and disclosures on our climate risks and focus. We undertake horizon scanning in potential breaches of our Code or policies. Our customers and the way we interact with respect for human rights. opportunities on page 56. conjunction with our corporate strategy confidential whistleblowing helpline, SpeakUp, consumers. Through our use of data we are Promoting positive drinking team to monitor any potential disruptions is available via phone or web portal, enabling constantly evolving our approach to each We want to offer consumers the opportunity that could dramatically change our industry anyone to report a concern. Additionally we market and delivering multi-channel to ‘drink better, not more’ – an approach that Brexit and/or our business from both a risk and encourage employees to come forward to their customer strategies (see more on page 18). both supports our social values and aligns We continue to monitor and where opportunity perspective. We perform line manager, legal, HR or risk and compliance The global economy with our commercial interests as a business possible mitigate the implications of Brexit, scenario planning and leverage external partners. Reports can be made in any of our Political instability and changes in economic making premium drinks. That means we are leveraging a cross-functional approach to thinking and research to consider the 20 Code languages. variables continue to have an impact across the committed to promoting moderation, while understand the risks that Brexit poses. The changes around us. This year 805 allegations of breaches were global economy. We cannot change the campaigning to reduce harmful drinking and mitigations for this risk are covered within Emerging risks can be new risks, where we reported, of which 238 were subsequently environment in which we operate, but our improving laws and industry standards. Our Risk 2 of our principal risks (Economic have not been able to fully assess the impact substantiated. There were more allegations global scale helps provide a natural hedge to Positive Drinking strategy, described on change) on page 22 and Brexit is discussed or known risks that continue to evolve as new through our human rights framework and than lastDIAGEO year, ANNUAL which REPORT is in 2019 line with external Sustainability & Responsibility review 53 changing variables. Our market-based model pages 45-46, includes ambitious targets for in more detail in the financial disclosures information becomes available. We involve our community programmes designed to benchmarks and due to increased awareness gives us the flexibility to identify and respond areas in which we can have the greatest impact sectionempower on women,page 170. help people develop experts where necessary to understand how of workplace behaviour. The number of STRATEGIC REPORT quickly to local dynamics. Our broad portfolio of in reducing harm: drink driving, underage our risk profile could change over a longer their skills, and increase access to water, substantiated breaches has declined versus brands means consumers can trade up or down drinking and excessive drinking. Through sanitation and hygiene (see more on pages time period. Our risk management approach We remain deeply committed to operating last year.risk Threeassessmentsof the of all substantiated our third-party breachesWe have made slower progress in some depending on the economic environment. our work, we support the World Health 48-51). This commitment strengthens our “As the severity of environmental considers short term to be one year, in the right way in everything we do. relatedmanufacturing to human sitesrights. and identified 18 in water- areas, notably the quality of wastewater we risks to business becomes ever Macro-economic trends are key Organization’s (WHO) goal of reducing supply chain, builds our employer brand and stressed areas. This year we began working discharge and our efforts to reduce the overall mediumClimate-related term tocorporate be three reporting to five years and Compliance and conducting our business All allegations are taken seriously, more apparent, companies considerations for our risk planning, outlined harmful drinking by 10%. gives us the resilience we need to continue with these sites to better understand their weight of our packaging. Although we 56 long term to be more than five years. with integrity are non-negotiables, and our investigatedwater performance and where and to required roll out our water comply with regulations on wastewater showing environmental leadership on pages 20-23. Understanding the long-term are positioning themselves to Acting responsibly in approachto perform to risk in and the compliance future. helps us go consequencestewardship management toolkit. is performed.everywhere we operate, for wastewater and dynamics of our markets means we can Our Water Blueprint is delivered through packaging the solutions we have explored so provide solutions, seize new market a regulated marketplace beyondClimate the change, basics to water encourage stress the and right a We monitora four-pillared all breaches strategic approach to identify and is trendsfar have not produced the improvements in anticipate, innovate and respond to key Climate risk Diageo plc opportunities and thrive in the ClimateThe beverage risk continues alcohol to industry evolve, and is highly we behavioursresponsible and environmentalattitudes everywhere, strategy or commondriven by areas our key where targets forfurther improving action water mayperformance we need to meet our stretching transition to a sustainable trends and unlock growth by drawing on the efficiency in our own and third-party 2020 targets. They will continue to be a focus regulated and that regulation varies everyAnyday. business that relies on agricultural raw be required. This year 79 people exited the Annual Report 2019 economy. I congratulate Diageo on strength of our diverse portfolio and acting will regularly assess and aim to mitigate operations, replenishing water in water- beyond 2020, and, in the next two to three thewidely impactbetween where countries possible. andWe recognisejurisdictions. materialsOur global and Code water of hasBusiness both aConduct responsibility businessstressed as a areasresult and of supporting breaches community of our Codeyears,p21 we plan and to address 53 them through a their inclusion in CDP’s A List for with agility. We comply with all laws and regulations, or policieswater versus programmes. 111 Wepeople continue in to the year range of solutions, including further Climate and Water in 2018, and for the importance of considering climate- (Code),to the available environment in 20 languages, around it and is the an advocate for greater collaboration and investments in wastewater treatment. Safeguarding our future wherever we operate, as a minimum joining the Supplier Engagement related risks and opportunities in business backboneexposure of howto environmental we manage compliance risks. Our risk. ended impact30 June in water 2018. management. Fewer breach leavers isWe remain committed to our 2020 targets 2018/9 leader board. We need to by earning trust and respect requirement. But we also advocate laws Theenvironmental Code sets out strategy, what we described stand for asin amore due to Understandinga reduction the in challengesseverity and type ofand we have identified investments that will urgently scale up environmental decisions and acknowledge that helpWhat us continue isour progress.helpful? We have also The expectations for businesses to be and industry standards, including minimum breachesand thislooking year. beyond 2020 action at all levels to meet the goals adopting the recommendations of the companydetail on and pages how 52-57, we operate is critical to toenable our all We have seen significant, long-term progress started work to define our ambition and Diageo includes a description of ofwater the Parisstress Agreement due to climate and the UN transparent, open and clear about their Tasklegal Forcepurchase on Climate-related age laws and Financial maximum ourlong-term employees success. to understand Our programmes what is required reduce against most of our targets. We have reduced targets for environmental sustainability beyond 2020, which we will share during Sustainable Development Goals.” purpose have arguably never been greater. blood-alcohol concentration driving limits, of themcarbonDIAGEO in the emissionsANNUAL conduct REPORT and of our water 2019 business use throughout across absolute greenhouse gas emissions from our change as a key risk. The extracts include some asset level21 Disclosures (TCFD) is an important step Reporteddirect and operations substantiated by 44.7% against breaches our 2007 the informationnext financial year. on which sites are vulnerable to water stress. That is why earning trust and respect continue in countries where these are not already in a rangeour value of compliance chain. They areas. also address waste Paul Simpson in supporting a smooth transition to a baseline and from our entire supply chain by Diageo also described the time horizons over which they to be at the heart of our performance place. Such measures, as well as protecting 27.1%. In the same period, waste to landfill was Chief Executive Officer, low-carbon economy. andWe undertakepackaging, mandatory including global plastic, training, and the down by 96.2% and we have improved our consider climate-related impacts.CDP ambition. Stakeholders are increasingly individuals and communities, help ensure a STRATEGIC REPORT This year we brought together a withuse an of integrated more sustainable Annual Certification packaging of water efficiency by 43.8%. challenging all businesses to show how they cross-functionalsustainable market working in which group our productsto fully can Compliancematerials. (ACC) The linkedfor all managers. phenomena In 2019, of climate make a positive impact and the United examinebe enjoyed our responsibly.priority areas At and the diagnosesame time, we thechangeACC was and completed water stress by 100% are particularlyof eligible Nations’ Sustainable Development Goals advocate against measures that are not based employees,materialcyber security, to9,771 our people. businessdata management Global and trainingto the and is oversight is provided by our global issues related to climate risk. Through this

Diageo sites located in water-stressed areas – and aligning our short-, medium- and provide a framework for businesses to on evidence or which could have unintended 34 deliveredcommunitiesmigration in an risks, easily around data accessible privacyus. With eLearning risk, the oversight compliance team which undertakes27 collaboration, we are assessing the range long-term outlook on climate risk with demonstrate their contribution to society. consequences, such as pushing consumers formatof our with Climate classroom Change training Working delivered Group, to we regular reviews on the effectiveness 32of environmental and climate risk, Brexit of risks and opportunities that climate 25 36 Earning trust and respect is particularly toward illicit alcohol, which can be a risk to the business’s principal risk time change poses to Diageo and options for thoseareand employees integratingtrade war who risks the do andmanagement not discrimination have regular of the programme. 40 horizons. 37 important for our industry. While the majority public health. accessclimate-relatedand toharassment. a computer. issues into our business. (i) We encourage our employees, and26 anyone managing these. Going forward, climate 2017This Annual Report2018 contains 2019additional 35 of people who choose to enjoy alcohol do riskPromoting will be managed inclusivity holistically and human by this rights AnotherOurPotential Water area emerging Blueprintof potential risksdefines compliance are alsoour aapproach key we do business with, to raise concerns28 about33 Reporteddisclosures on our climate risks and 31 39 so moderately and responsibly, we know risktois water our interactions stewardship with and prioritisesthird parties. our actions potential breaches of our Code or policies.29 Our group‘We value and regulareach other.’ updates This statementwill be is one focus. We undertake horizon scanning in Reported through SpeakUp 38 the misuse of alcohol can harm individuals Substantiatedopportunities breaches on page 56. providedof our five to thecore Executive values and and it Board.has never been OurinconjunctionKnow areas Yourwe have Businesswith defined our Partnercorporate as water-stressed, programme strategy as confidential whistleblowing helpline, SpeakUp,30 Code-related leavers and those around them. This can also have moreWe relevant.have completed Consumers, a number employees of and is designedillustratedteam to monitorto on help page usany 53. evaluate potential Along thewith disruptions risk improving of is available via phone or web portal, enabling adverse impacts on our industry’s reputation assessmentsmany other instakeholders specific countries expect businesses to doingwaterthat business could efficiency, dramatically with awe third are changereplenishing party prior our industry tothe water (i) 2018Brexit data restated in accordance with Diageo’s 18 anyone to report a concern. Additionally we and our long-term operating environment. reporting methodologies for reported and 23 betterto respect understand human the rights impact and of create climate an enteringusedand/or in into ourwater-stressed a business contractual from areas, relationship, both supporting a risk and as substantiated breaches of the Code of 17 14 15 encourage employees to come forward to their We continue to monitor and19 20where 11 1 As a global leader in premium alcohol, we wellcatchment as monitor area any management changes throughout to benefit our all Business Conduct. 2 DIAGEO ANNUAL REPORT 2019 changeinclusive including culture. water Within scarcity, our business, and the this is opportunity perspective. We perform 21 possible mitigate the implications21 of Brexit,13 line manager, legal, HR or risk and compliance are committed to promoting positive interactions.waterscenario users, planning We and assess helping and all leverageour farmers business external improve 16 partners.3 Reports can be made in any of our possiblereflected impact in a strong on our policysupply framework chains. and leveraging a cross-functional approach22 to7 5 drinking, so that our brands and our business 24 12 a strategicIn the coming commitment year, we will to inclusionprogress and partnerswaterthinking formanagement andpotential research compliance in to agriculture. consider risks the such understand the risks that Brexit poses. The 20 Code languages. have a sustainable future. 9 furtherdiversity, with including the implementation gender balance of andthe health as briberychanges corruption, around us. money laundering, mitigations for this risk are covered within4 6 10This year 805 allegations of breaches were As the stewards of brands which have STRATEGIC REPORT 8 TCFDand safetyrecommendations, (see more on includingpages 58-59). And it tax evasionEmerging facilitation, risks can data be privacynew risks, or whereother we Risk 2 of our principal risks (Economic reported, of which 238 were subsequently been part of communities around the world completingextends across in-depth our value climate chain: risk to our reputationalhave not been red flags, able toand fully we assess implement the impact change) on page 22 and Brexit is discussed substantiated. There were more allegations for centuries, we understand the importance assessmentssuppliers, distributors in a number and of consumers,key markets additionalor known due risks diligence that continue processes to evolve on those as new Sites than last year, which is in line with external cyber security, data management and oversight is provided by our global in more1 Kenya Brewing, detail in the 7 Khangelafinancial Brewery, disclosures15 IDU, Kampala, Uganda 23 Meta Abo, Ethiopia 30 Kumbalgodu, Karnataka 38 Sovereign, Karnataka – and aligning our short-, medium- and thatinformation pose a potential becomes higher available. risk. Central We involve Nairobi, Kenya South Africa 16 Accra, Achimota, Ghanabenchmarks24 Marracuene, and Mozambique due 31to Malkajgiri, increased Telangana awareness39 Tern, Andhra Pradesh migration risks, data privacy risk, compliance team which undertakes section2 East Africa on Maltings, page 170.8 Isithebe, South Africa 17 Kumasi, Kaasi, Ghana India 32 Meerut, Uttar Pradesh 40 Udaipur, Rajasthan experts where necessary to understand how Nairobi, Kenya 9 Tlokwe, South Africa 18 Ogba, Lagos, Nigeriaof workplace25 Alwar, Rajasthan behaviour. 33 Nacharam, The numberTelangana of long-term outlook on climate risk with 3 Seybrew, Seychelles 10 Isipingo, South Africa 19 Paraipaba, Ceará, Brazil 26 Aurangabad, Maharashtra 34 Pathankot, Punjab environmental and climate risk, Brexit regular reviews on the effectiveness of 4 SA Cider, South Africa 11 Moshi, Tanzania 20 Agricultural lands, 27 Baddi, Himachal Pradesh 35 Pioneer, Maharashtra the business’s principal risk time our risk profile could change over a longer 5 Phelindaba Brewery, 12 Dar es Salaam, Tanzania Ceará, Brazil substantiated28 Baramati, Maharashtra breaches36 Rosa,has Uttar declined Pradesh versus and trade war risks and discrimination the programme. South Africa 13 Mwanza, Tanzania 21 Messejana, Brazil 29 Hospet, Karnataka 37 Serampore, West Bengal horizons. time period. Our risk management approach We remain6 Butterworth deeply Brewery, committed14 UBL, Kampala, Ugandato operating22 Maracanaú, Brazil last year. Three of the substantiated breaches and harassment. We encourage our employees, and anyone South Africa This Annual Report contains additional considers short term to be one year, in the right way in everything we do. related to human rights. Potential emerging risks are also a key we do business with, to raise concerns about disclosures on our climate risks and medium term to be three to five years and Compliance and conducting our business All allegations are taken seriously, focus. We undertake horizon scanning in potential breaches of our Code or policies. Our opportunities on page 56. long term to be more than five years. with integrity are non-negotiables, and our investigated and where required conjunction with our corporate strategy confidential whistleblowing helpline, SpeakUp, approach to risk and compliance helps us go consequence management is performed. team to monitor any potential disruptions is available via phone or web portal, enabling beyond the basics to encourage the right We monitor all breaches to identify trends that could dramatically change our industry anyoneClimate to report risk a concern. Additionally we BrexitQuick read Introduction Regulatory and market 1 Investor expectations behaviours2 Appendix and A – attitudes questions everywhere,3 Appendix B – examplesor common4 Appendix areas C –where participants further 5 actionAppendix may D – regulatory and/or our business from both a risk and encourageClimateoverview employees risk continues to come to evolve, forwardand company and to theirwe views and recommended of developing practice and process and market initiatives We continue to monitor and where every day. be required. This year 79 people exited the opportunity perspective. We perform line manager,will regularly legal, assess HR or and risk aimand tocompliance mitigate disclosures possible mitigate the implications of Brexit, Our global Code of Business Conduct business as a result of breaches of our Code scenario planning and leverage external partners.the impact Reports where can be possible. made in We any recognise of our leveraging a cross-functional approach to (Code), available in 20 languages, is the or policies versus 111 people in the year thinking and research to consider the 20 Codethe importance languages. of considering climateunderstand the risks that Brexit poses. The backbone of how we manage compliance risk. ended 30 June 2018. Fewer breach leavers is changes around us. Thisrelated year risks 805 andallegations opportunities of breaches in business were mitigations for this risk are covered within The Code sets out what we stand for as a due to a reduction in severity and type of Emerging risks can be new risks, where we reported,decisions of which and acknowledge238 were subsequently that Risk 2 of our principal risks (Economic company and how we operate to enable all breaches this year. have not been able to fully assess the impact substantiated.adopting the There recommendations were more allegations of the change) on page 22 and Brexit is discussed our employees to understand what is required or known risks that continue to evolve as new thanTask last Forceyear, which on Climate-related is in line with Financialexternal in more detail in the financial disclosures of them in the conduct of our business across information becomes available. We involve benchmarksDisclosures and (TCFD) due to is increased an important awareness step Reported and substantiated breaches section on page 170. a range of compliance areas. experts where necessary to understand how of workplacein supporting behaviour. a smooth The transitionnumber of to a

We undertake mandatory global training, 805 our risk profile could change over a longer substantiatedlow-carbon breaches economy. has declined versus This year we brought together a with an integrated Annual Certification of 712 time period. Our risk management approach We remain deeply committed to operating last year. Three of the substantiated breaches 636 cross-functional working group to fully Compliance (ACC) for all managers. In 2019, considers short term to be one year, in the right way in everything we do. related to human rights. examine our priority areas and diagnose the ACC was completed by 100% of eligible medium term to be three to five years and Compliance and conducting our business All allegations are taken seriously, 421 employees, 9,771 people. Global training is issues related to climate risk. Through this 332 long term to be more than five years. investigated and where required 299 with integrity are non-negotiables, and our 284 273

collaboration, we are assessing the range delivered in an easily accessible eLearning 238 approach to risk and compliance helps us go consequence management is performed. format with classroom training delivered to 111 of risks and opportunities that climate 106 beyond the basics to encourage the right We monitor all breaches to identify trends 79 Climate risk change poses to Diageo and options for those employees who do not have regular Climate risk continues to evolve, and we behaviours and attitudes everywhere, or common areas where further action may managing these. Going forward, climate access to a computer. 2017 2018(i) 2019 will regularly assess and aim to mitigate every day. be required. This year 79 people exited the risk will be managed holistically by this Another area of potential compliance the impact where possible. We recognise Our global Code of Business Conduct business as a result of breaches of our Code Reported group and regular updates will be risk is our interactions with third parties. Reported through SpeakUp the importance of considering climate- (Code), available in 20 languages, is the or policies versus 111 people in the year provided to the Executive and Board. Our Know Your Business Partner programme Substantiated breaches related risks and opportunities in business backbone of how we manage compliance risk. ended 30 June 2018. Fewer breach leavers is Code-related leavers We have completed a number of is designed to help us evaluate the risk of decisions and acknowledge that The Code sets out what we stand for as a due to a reduction in severity and type of assessments in specific countries to doing business with a third party prior to (i) 2018 data restated in accordance with Diageo’s adopting the recommendations of the company and how we operate to enable all breaches this year. reporting methodologies for reported and better understand the impact of climate entering into a contractual relationship, as substantiated breaches of the Code of Task Force on Climate-related Financial our employees to understand what is required change including water scarcity, and the well as monitor any changes throughout our Business Conduct. Disclosures (TCFD) is an important step of them in the conduct of our business across Reportedpossible and impact substantiated on our supply breaches chains. interactions. We assess all our business in supporting a smooth transition to a a range of compliance areas. In the coming year, we will progress partners for potential compliance risks such low-carbon economy. We undertake mandatory global training, further with the implementation of the as bribery corruption, money laundering, This year we brought together a with an integrated Annual Certification of TCFD recommendations, including tax evasion facilitation, data privacy or other cross-functional working group to fully Compliance (ACC) for all managers. In 2019, completing in-depth climate risk reputational red flags, and we implement examine our priority areas and diagnose the ACC was completed by 100% of eligible additional due diligence processes on those employees, 9,771 people. Global training is assessments in a number of key markets issues related to climate risk. Through this

that pose a potential higher risk. Central collaboration, we are assessing the range delivered in an easily accessible eLearning format with classroom training delivered to of risks and opportunities that climate change poses to Diageo and options for those employees who do not have regular managing these. Going forward, climate access to a computer. 2017 2018(i) 2019 risk will be managed holistically by this Another area of potential compliance Reported group and regular updates will be risk is our interactions with third parties. Reported through SpeakUp provided to the Executive and Board. Our Know Your Business Partner programme Substantiated breaches Code-related leavers We have completed a number of is designed to help us evaluate the risk of assessments in specific countries to doing business with a third party prior to (i) 2018 data restated in accordance with Diageo’s reporting methodologies for reported and better understand the impact of climate entering into a contractual relationship, as substantiated breaches of the Code of change including water scarcity, and the well as monitor any changes throughout our Business Conduct. possible impact on our supply chains. interactions. We assess all our business In the coming year, we will progress partners for potential compliance risks such further with the implementation of the as bribery corruption, money laundering, TCFD recommendations, including tax evasion facilitation, data privacy or other completing in-depth climate risk reputational red flags, and we implement assessments in a number of key markets additional due diligence processes on those that pose a potential higher risk. Central Climate-related corporate reporting 57

Johnson Matthey plc Annual Report and Accounts 2019 p55

What is helpful? Johnson Matthey includes a description of its benchmarking approach undertaken against an external framework and an indication of the actions taken to address the related risk. The extract describes the climate-related risks the business faces, including high level examples at an asset-by-asset level, and future action it plans to take to understand the risks posed throughout the supply chain.

Bloomberg L.P. Bloomberg Impact Report 2018 - Climate Scenario Analysis

What is helpful? Bloomberg discusses how it is using scenario analysis and the insights gathered, such as the ‘signposts’ for different scenario pathways and how this may inform its business strategy. Bloomberg also discusses the different time horizons it is considering.

Evolving strategies for an evolving world. Climate-related corporate reporting 59

We monitor the following events and trends to alert us to potential climate-related impacts on our company. The financial impacts on Bloomberg that could result from changes around these signposts are reported in our scenario analysis on the next page. Bloomberg L.P.

Type of change Select signposts Evolving areas of impact Bloomberg Impact Report 2018 - Evolving Strategies for an Evolving World Policy and legal Tax policies and renewable energy Changing U.S. tax incentives will not impact our existing incentives, especially in London renewable contracts; however, future contracts will and New York where our energy need to be evaluated under new policies. In Europe, use is concentrated the ESOS (Energy Savings Opportunity Scheme) is also What is helpful? changing, leading to uncertainties around impact. We have hired a consultant to help us take advantage of the In this extract, Bloomberg highlights the indicators they monitor changes once the policies are updated. in relation to climate-related issues, and how those may impact future strategic business decisions. Finalization of the Nationally Determined Progress at the UN climate change conferences will Contributions (NDCs) to fulfill the Paris determine the speed and stringency with which the NDCs Agreement are finalized. Resulting future regional regulations may impact potential clean energy/smart technology projects and product strategies.

Resource efficiency Differences between regional prices Changes in prices between clean and traditional energy, and energy source for renewable energy and natural such as the jump in U.S. natural gas futures in November gas in markets where we have 2018, will help us determine the type and pace of significant consumption renewable energy implementation going forward.

Penetration of renewable energy Innovation in procurement and pricing models, such as the Corporate Renewable Energy Aggregation Group, a purchasing cooperative Bloomberg recently helped form, should make renewable energy sourcing more efficient and accessible on a smaller scale, thus expanding access in more markets.

Market Volatility of fossil fuel and renewable Increases in volatility may change the trading tools energy markets our clients need and increase their reliance on high-frequency data.

Changes in coal and crude oil prices Low prices for fossil fuels may limit the economic viability of their production and accelerate a low-carbon transition.

Volume and scale of green debt and In 2018, significant growth in green-loan issuance allowed carbon trading markets and securitization us to capture more green-debt data for client analysis. of green bonds Further growth in sustainable-finance markets could lead to new client demand for data, analysis and trading tools.

Products Bloomberg product sales linked to In 2018, we launched a new ESG enterprise-wide data feed and services climate-related tools to serve expanded customer needs. Ongoing increased demand for sustainability tools may lead us to expand ESG products and services.

Physical Acute: Frequency of severe storms and In India, where air pollution is problematic, we've taken wildfires where we operate action to monitor and clean our office air, including Quick read Introduction Regulatory and market 1 Investor expectations 2 Appendix A – questions 3 Appendix B – examples 4 Appendix C – participants 5 Appendix D – regulatory overview installingand standalone company views purification andsystems recommended and enhancing of developing practice and process and market initiatives Chronic: Regional changes to temperature, existing HVAC systems. In 2018, wedisclosures also took similar air quality, sea level and water scarcity measures in response to the California wildfires. Climate-related corporate reporting 60

Oil Search Ltd Climate Change Resilience Report 2017

Climate Change Resilience Report 2017 p27

SUMMARY OF POSSIBLE PORTFOLIO IMPACTS UNDER THE SCENARIOS TESTED 1. Compared with Oil Search’s internal economic What is helpful? assumptions. Oil Search’s extracts on the 11 30% of PNG LNG’s value is realised over the five- next two pages include a PROJECT SCENARIO NPV IMPACT COMMENTS 2. year period from 2018-2022. The scenarios show a description of outcomes and Economic life not negatively impacted compared to our NPV-related results for three IEA NPS base case. short term drop in prices to the US$30s and US$40s of its projects. NPV impacted by short-term price drop inherent in scenario12. starting in 2018, and this negatively impacts NPV of PNG LNG. Actual oil prices in late 2017 and early PNG LNG (including Oil Search oil assets) Economic life comparable to our low case. 2018 have instead ranged between 60 and 70. PNG IEA 450 (2°C) NPV impacted by short-term prices inherent in scenario12. LNG would have a much higher NPV if the climate scenarios did not have a short-term drop in oil GREENPEACE Value would be eroded under this scenario. AER (1.5°C) However, the project would remain NPV-positive. prices and actuals were used. We have chosen to preserve the integrity of the scenario and report NPV impacts are significantly more favourable than our base the impact using the embedded numbers for this economic assumptions. IEA NPS period, not substituting for actuals. Extends economic life of project by approximately two years. LNG Expansion Project (Elk-Antelope, P’nyang, and 3. Oil Search acquired the Nanushuk assets in NPV and asset economic life impact falls between our base foundation field gas) IEA 450 (2°C) and low economic cases. November 2017.

GREENPEACE Value would be eroded under this scenario. %The climate NPV analysis is based on a AER (1.5°C) However, the project would remain NPV-positive. conservative acquisition case development IEA NPS NPV impacts are more favourable than our base CEA. concept. The acquisition case is based on a resource of 500 million barrels, compared to the IEA 450 (2°C) Value is eroded but the project would remain NPV-positive. Nanushuk Project13 existing joint venture partners’ estimates of at

GREENPEACE Long-term oil price of US$5 significantly impacts the NPV least 1.2 billion barrels. The NPV analysis does AER (1.5°C) of the project and the project would not be sanctioned. not include the anticipated design efficiencies, opportunities to realise synergies with the existing infrastructure, or the value of our option to double our interest in the asset by mid-2019. It does Positive impact on Impact within OSH’s Returns are less than Significant negative project economics base and low case. planned but asset is impact and project does include the lower USA corporate tax rate that NPV positive and NPV positive and still economic and not pay back investment above OSH’s within OSH’s base makes positive returns NPV negative. Project became law in December 2017. base CEA and low CEA NPV positive and below would not be economic OSH’s low CEA if this scenario was to eventuate

11. Compared with Oil Search’s internal economic assumptions. 12. 30% of PNG LNG’s value is realised over the five-year period from 2018-2022. The scenarios show a short-term drop in prices to the US$30s and US$40s starting in 2018, Quick read Introduction and this negativelyRegulatory impacts the NPV and of PNG market LNG. Actual oil prices in Investorlate 2017 and earlyexpectations 2018 have instead ranged betweenAppendix US$60 and US$70. A – questionsPNG LNG would have a much Appendix C – participants Appendix D – regulatory higher NPV if the climate scenarios did not have a short-term drop1 in oil prices and actuals were used. We have chosen2 to preserve the integrity of the scenario and report3 theAppendix B – examples 4 5 impact using theoverview embedded numbers for this period, not substitutingand for actuals. company views and recommended of developing practice and process and market initiatives 13. Oil Search acquired the Nanushuk assets in November 2017. The climate NPV analysis is based on a conservative acquisitiondisclosures case development concept. The acquisition case is based on a resource of 500 million barrels, compared to the existing joint venture partners’ estimates of at least 1.2 billion barrels. The NPV analysis does not include the anticipated design efficiencies, opportunities to realise synergies with existing infrastructure, or the value of our option to double our interest in the asset by mid-2019. It does include the lower USA corporate tax rate that became law in December 2017. Climate Change Oil Search Annual Report 2017

and Sustainability (HSS) Committee Oil Search’s material corporate climate risks include: supports the Board and oversees the Company’s strategies, processes PRIMARY RISK TYPE RISK DESCRIPTION TIME HORIZON and performance relating to climate CONTROLS change. Oil Search’s corporate risk Changes in demand for our management process aims to ensure products due to emission Transition risk Long-term Climate scenario analysis the Company has appropriate reduction policies or strategies for managing key risks technological changes. to its objectives. Increase in operating costs of our long-life assets due Medium and In late 2017, the Oil Search Board Operating costs to carbon pricing policies Internal carbon price long-term approved a new stand-alone Climate or other market mechanisms or regulations. Change Policy, making its position and commitments around climate Reputational impacts, driven Enhanced disclosure by stakeholder activism and in line with TCFD change explicit. Short, medium Reputation risk increasing societal expectations recommendations. and long-term that negatively impact our social Detailed discussion of the Company’s Monitoring of changing licence to operate. expectations climate risks and opportunities can be found in the Oil Search Climate Physical impact of climate Medium and Physical climate risk Physical risk on our assets and on the Change Resilience Report. long-term assessment communities where we operate. Oil Search has identified primary Climate-related corporate reporting 61 controls to help manage its climate risks. These include climate (transition) Oil Search Ltd scenario analysis and the adoption of an internal carbon price. Annual Report 2017 RESILIENT ASSETS p45-49

Climate scenario analysis Oil Search’s high quality, globally competitive LNG assets will continue to be resilient under the IEA scenarios tested. Climate scenario analysis forms a key organisational control for identifying The Company’s LNG expansion project’s performance is positively impacted and managing climate transition risk, under an IEA NP scenario and performs no worse than Oil Search’s current and is an important part of Oil Search’s low Corporate Economic Assumption (CEA5) in an IEA 450 (2°C) scenario. strategy development and decision- making processes. The LNG expansion project sits on the lower quartile of the cost curve compared to other proposed new projects needed to meet additional In 2017, the Company conducted LNG demand, making it one of the most resilient LNG projects in climate scenario analysis to assess a carbon-constrained 2°C world. the resilience of its current assets and growth assets using three In a 2°C scenario, PNG LNG and the Company’s LNG expansion independently published climate project will continue to have positive NPVs and will have economic scenarios: lives consistent with CEAs. v IEA New Policies Scenario Under the IEA NP, the Nanushuk oil assets perform better than under (IEA NP): Reflects announced Oil Search’s base CEA. government policies (including 2015 Paris pledges)2. Under the IEA 450 (2°C) scenario, an additional 20 million barrels of oil per day is required to meet demand. Oil Search’s globally competitive Nanushuk v IEA 450 Scenario (IEA 2°C): oil project is able to meet this additional demand and remains NPV-positive. IEA’s 2-degree Celsius scenario3. v Greenpeace Advance Energy There is a low risk of Oil Search’s low-cost assets being [R]evolution Scenario (GP AER): stranded in a carbon-constrained world. Complete decarbonisation scenario (~1.5°C)4. Quick read Introduction Regulatory and market 1 Investor expectations 2 Appendix A – questions 3 Appendix B – examples 4 Appendix C – participants 5 Appendix D – regulatory overview and company views and recommended of developing practice and process and market initiatives disclosures

2. https://www.iea.org/bookshop/720-World_Energy_Outlook_2016 3. https://www.iea.org/bookshop/720-World_Energy_Outlook_2016 4. http://www.greenpeace.org/international/Global/international/publications/climate/2015/Energy-Revolution-2015-Full.pdf 5. Oil Search’s Corporate Economic Assumptions (CEA) include High, Base, and Low oil price assumptions. When the Company assesses its investments, it uses the Base CEA oil price as the reference case and tests the High and Low oil prices as sensitivities. 45 Climate-related corporate reporting 62

What is helpful? Rio Tinto plc These extracts include a description of the scenario modelled, a description of business resilience and an outline of commodity impacts Our Approach to Climate Change 2018 under the modelled scenario. CLIMATE SCENARIOS p18, 19

CLIMATE SCENARIOS Our analysis indicates that Rio Tinto’s business is relatively 1. Short to medium term (0-20 years): while there is limited We have identified three robust to scenarios mapping the policy and technology pathways scope to react immediately to regulatory changes, we do have The IEA Sustainable necessary to limit global temperature rises: the ability to mitigate (or potentially take advantage of) shifts scenarios that attempt to Our analysis indicates that Rio Tinto’s business is relatively 1. inShort technology to medium and termthe policy (0-20 environment. years): while Inthere this istimeframe, limited We have identified three Development Scenario –robust Financial to scenarios impact mapping at a manageable the policy level: and technology Rio Tinto has pathways the physicalscope to changesreact immediately are largely to pre-determined regulatory changes, since wethey do are have assess plausible The IEA Sustainable necessaryfinancial to and limit institutional global temperature capacity to rises: manage the long-term largelythe ability the to result mitigate of carbon (or potentially levels already take advantageaccumulated of) inshifts the combinationsscenarios that of attempt these to impacts of a scenario limiting a rise in global temperature to atmospherein technology over and past the policydecades. environment. In this timeframe, Development(SDS) Scenario – Financialbelow 2°C, impact while continuing at a manageable to be profitable; level: Rio Tinto has the physical changes are largely pre-determined since they are factorsassess plausibleto better financial and institutional capacity to manage the long-term 2. largelyLong term the (20-50result of years): carbon the levels physical already impact accumulated of climate in the – Portfolio naturally hedged: diversification of our portfolio combinations of these In the SDS, global CO emissions peak before 2020 and decline impacts of a scenario limiting a rise in global temperature to atmospherechange to the over world past could decades. potentially become more severe, understand the resilience 2 across multiple commodities provides a natural hedge against (SDS)swiftly. By 2040, emissions are at the lower end of a range of below 2°C, while continuing to be profitable; depending on the success or failure of policy. Technology factors to better climate change policy; our aluminium and copper assets will 2. developmentLong term (20-50 is highly years): uncertain. the physical impact of climate of the business across all publicly available decarbonisation scenarios, all of which – Portfolio naturally hedged: diversification of our portfolio In the SDS, global CO emissions peak before 2020 and decline be needed in the transition to a low-carbon future and could change to the world could potentially become more severe, understand the resilience estimate a temperature2 increase of around 1.7-1.8°C in 2100. provideacross multiple an offset commodities in an environment provides where a natural our iron hedge ore againstassets Acrossdepending these timeon the horizons, success the or failureGroup assessesof policy. threeTechnology climate time periods. swiftly. By 2040, emissions are at the lower end of a range of climate change policy; our aluminium and copper assets will change scenarios, which consider: of the business across all publicly available decarbonisation scenarios, all of which are less attractive from a climate change perspective; development is highly uncertain. Developed world carbon prices reach US$140/tCO2e in 2040 be needed in the transition to a low-carbon future and could 1. Limited Action: currently forms the estimate a temperature increase of around 1.7-1.8°C in 2100. – Many abatement options available to us to reduce direct (US$100/tCO2e in the developing world). This increases the cost provide an offset in an environment where our iron ore assets –Across The policythese timeenvironment horizons, –the for Group example, assesses the level three and climate timebaseline periods. for our financial assessments emissions: the significant number of internal abatement of carbon-intensive power used for mining, processing, and are less attractive from a climate change perspective; changecoordination scenarios, of carbonwhich consider: pricing internationally; and and assumes that carbon prices (or other Developed world carbon prices reach US$140/tCO e in 2040 options available, coupled with a more gradual evolution of transporting ores to customers. The total economic2 cost of 1. financialLimited Action: incentives currently to reduce forms carbon the (US$100/tCO e in the developing world). This increases the cost – downstreamMany abatement industries, options will available give us timeto us to to anticipate reduce direct and – The rate of technological development – for example, the implementing2 low-carbon technology is not expected to be a – The policy environment – for example, the level and emissions)baseline for remain our financial similar assessments to today’s adaptemissions: to changes the significant in policy. number of internal abatement costs of low-carbon electricity generation and batteries. significantof carbon-intensive drag on economic power used growth, for mining, given theprocessing, multiple and co- coordination of carbon pricing internationally; and levels throughoutand assumes that thecarbon planning prices period. (or other options available, coupled with a more gradual evolution of benefits,transporting including ores to higher customers. productivity The total from economic lower levels cost of air It describesfinancial incentives a conservative to reduce assumption carbon downstream industries, will give us time to anticipate and Our– The approach rate of recognises technological that development there is an interplay – for example, between the pollution.implementing Thus, low-carbon the main impact technology on commodity is not expected prices tois befrom a the Rio Tinto considers the impact of climate change over two time againstemissions) which remain to measure similar moreto today’s proactive adapt to changes in policy. thesecosts two of factors: low-carbon technology electricity that generation leapfrogs whatand batteries. is available costsignificant side, and drag the on dominant economic factor growth, influencing given the our multiple margins co- is our horizons given the long-term nature of our business and the levels throughout the planning period. today, for example, could succeed in dramatically reducing scenarios. carbonbenefits, intensity including (or higher that of productivity using Rio Tinto’s from lowerproducts) levels relative of air to potential for unpredictability in regulatory response. It describes a conservative assumption climateOur approach change recognises and its impacts that there even is in an an interplay environment between where thatpollution. of our Thus, peers. the main impact on commodity prices is from the Rio Tinto considers the impact of climate change over two time 2. againstCoordinated which Action: to measure describes more aproactive central governmentthese two factors: mandates technology do not thatexist. leapfrogs what is available cost side, and the dominant factor influencing our margins is our horizons given the long-term nature of our business and the scenarios.case view of policy pathways to 2050, potential for unpredictability in regulatory response. today, for example, could succeed in dramatically reducing taking into account both climate change Wecarbon have intensity made commodity-specific (or that of using Rio assumptions Tinto’s products) to flesh relative out the to climate change and its impacts even in an environment where 2. objectivesCoordinated and Action: a view describeson the feasibility a central of Scenariothat of our in peers. a plausible fashion: government mandates do not exist. policiescase view being of policy adopted. pathways We believe to 2050, it is likelytaking that into climate account change both climate ambition change will –IronWe have ore made and steel:commodity-specific we assume full assumptionspass-through to of flesh carbon out costs the graduallyobjectives increase and a view over on time, the feasibility resulting ofin Scenarioto mines in anda plausible smelters fashion: even though a degree of transitional Pace of technological change anpolicies increase being of adopted.nationally We determined believe it is assistance is possible. High carbon prices provide an incentive – Iron ore and steel: we assume full pass-through of carbon costs FAST contributions.likely that climate However, change we ambition anticipate will that to increase the use of high-grade ores, lump, and pellets. High thegradually pace and increase degree over of ambitiontime, resulting will be in carbonto mines prices and smeltersare assumed even to though cause asignificant degree of substitutiontransitional Pace of technological change insufficientan increase toof meetnationally the Paris determined Agreement. towardsassistance scrap, is possible. reducing High demand carbon for prices ore. provide an incentive Climate change to increase the use of high-grade ores, lump, and pellets. High FAST Thiscontributions. scenario lies However, in-between we anticipate the that – Copper and aluminium: we consider the impact on the cost of <2˚C Tech-led scenarios carbon prices are assumed to cause significant substitution solutions Internationalthe pace and Energydegree ofAgency’s ambition (IEA) will Newbe acquiring raw materials, such as alumina, and assume that insufficient to meet the Paris Agreement. towards scrap, reducing demand for ore. RioClimate Tinto change Policies and Sustainable Development transitional assistance for aluminium is phased out quickly. In <2˚C Tech-led scenarios,This scenario resulting lies in-between in a climate the change –the Copper short and to aluminium:medium term, we carbon-relatedconsider the impact cost inflationon the cost is likely of scenariosCoordinated Action solutions outcomeInternational in the Energy 2.5 -3.5°C Agency’s warming (IEA) range New toacquiring be lower raw for materials, copper than such aluminium, as alumina, leading and assume to limited that Limited Action Rio Tinto byPolicies 2100. and Sustainable Development substitutiontransitional assistance towards copper. for aluminium is phased out quickly. In scenarios, resulting in a climate change the short to medium term, carbon-related cost inflation is likely Coordinated Action 3. IEA Sustainable Development Scenario: – Battery materials (incl. lithium): we use a high-case electric Global IEA outcome in the 2.5 -3.5°C warming range to be lower for copper than aluminium, leading to limited Limited Action developed by the IEA to describe a vehicle penetration forecast, consistent with the IEA SDS, but conscience by 2100. substitution towards copper. IEA New Policies plausible path to meet the key global with additional detail on the types of vehicles, size of batteries IEA Sustainable 3. goalsIEA Sustainable of the Paris Development Agreement and Scenario: hold the – Battery materials (incl. lithium): we use a high-case electric Global FRAGMENTED IEA and implications of these for commodity demand. conscience Development risedeveloped in the globalby the averageIEA to describe temperature a to vehicle penetration forecast, consistent with the IEA SDS, but IEA New Policies wellplausible below path 2°C toabove meet pre-industrial the key global levels. with additional detail on the types of vehicles, size of batteries IEA Sustainable goals of the Paris Agreement and hold the FRAGMENTED This scenario assumes relatively high- and implications of these for commodity demand. Development rise in the global average temperature to Status Adaptation carbon prices (up to US$140/tCO2e by quo 2040well below in developed 2°C above countries) pre-industrial as well levels. as a COORDINATED widespreadThis scenario deployment assumes relatively of low-carbon high- Status Adaptation technologiescarbon prices such (up to as US$140/tCO carbon capture2e by and quo storage.2040 in developed Where possible countries) we use as IEA’swell as a COORDINATED >4˚C Global policy framework assumptionswidespread deployment directly, but of it low-carbon is also necessarytechnologies to makesuch as additional carbon capture reasonable and SLOW >4˚C assumptionsstorage. Where regarding possible how we usethese IEA’s will pass Global policy framework throughassumptions to the directly, mining butand it processing is also industries.necessary to make additional reasonable SLOW assumptions regarding how these will pass through to the mining and processing industries. Quick read Introduction Regulatory and market 1 Investor expectations 2 Appendix A – questions 3 Appendix B – examples 4 Appendix C – participants 5 Appendix D – regulatory overview and company views and recommended of developing practice and process and market initiatives disclosures

18 Our approach to climate change Our approach to climate change 19

18 Our approach to climate change Our approach to climate change 19 NEW FRONTIERS

Energy Rio Tinto’s Transitions internal Commission: use of a hard-to- Climate-related corporate reporting carbon price63 abate sectors Rio Tinto plc Rio Tinto has joined the Energy Commodity impacts One of the ways we mitigate the Transitions Commission (ETC), potential impact of climate The table gives a high-level summary of the potential risks and opportunities for a group of leaders from public, change policies on our business Rio Tinto’s portfolio across different time horizons within the IEA SDS relative to the Our Approach to Climate private and social sectors with is through the use of an internal Limited Action case. Coordinated Action, which lies between Limited Action and the the goal of accelerating change Changeprice on carbon. 2018 Rio Tinto has IEA SDS, would have directionally similar, albeit smaller, implications. towards low-carbon energy p22,tested 23 the resilience of its systems. The ETC is tackling the investments against a carbon challenge of how we reduce The methodology used to consider implications of the IEA SDS on the outlook of our key price since 1998. We have emissions from the “hard-to- commodities accounts for impacts of regulations and technologies on demand, the cost developed separate price abate” industrial and transport structure of supply and the knock-on effect on price. forecasts for the regions and sectors of the economy, including main markets in which we steel – the customer for our iron Commodity impacts of a 2°C scenario operate and sell our products, ore and the source of most of our and modelled how these might scope 3 emissions. Commodity Outlook Short to medium term Long term change over time. Pilbara iron ore Pilbara iron ore becomes less attractive due to the effect There is large uncertainty around how the steel production sector will decarbonise These sectors will account for of increased use of scrap, however, the business in the long run, which could materially affect the value of Rio Tinto’s iron ore business. Our process to develop and an increasing percentage of the continues to be highly profitable. Demand for lump and In addition to an escalation of the severity of the medium-term impacts, there is a need update carbon prices includes total global emissions and pellet is robust. There is scope to significantly to plan for greater frequency and intensity of cyclones on the Pilbara coast. short-term market data, price without action will make it decarbonise our iron ore mining operations in order to forecasts and scenarios, and impossible for the world to meet maintain cost-competitiveness (see Reducing our input from experts within and the goals of the Paris Agreement footprint). outside our business. The and net zero emissions by 2050 Copper Increased demand for copper as well as other battery Structural increase in demand due to faster electric vehicle take-up and investment forecasts will be impacted by to 2070. (and battery materials due to greater focus on electrification. Supply in power and the grid, requiring significant new supply, partially offset by an increase variables such as the progress of materials such investment expected to lag demand due to long mine in scrap collection rates. international climate agreements The recent ETC report, Mission as lithium) development lead times, resulting in extended periods of and commitments on national possible: Reaching zero carbon high prices. energy and climate policy, and emissions from hard to abate Aluminium Emission-reduction policies likely to increase aluminium Structurally steeper global aluminium cost curve and potential for the evolution of low-emission sectors by mid-century, (including prices, benefiting low-cost, low-carbon producers but decarbonising aluminium smelting direct emissions using inert anode technology. technology costs and concludes that it is technically bauxite mining putting greater pressure on coal-based smelters as well deployment. possible to decarbonise these and alumina as the refineries supporting them. hard-to-abate sectors at an refining) The climate scenarios described affordable cost to consumers and contribute to the maintenance to the overall economy, but there Portfolio resilience and update of our carbon cost are important issues relating to forecasts. They also impact the the feasible pace of change and The factors described above could have a material impact on our business, but on forecasts we use for the price of the optimal process of transition, balance we believe that Rio Tinto is likely to be resilient to these issues, given: our commodities. including the pace of innovation and the importance of strong – Factors will affect different commodities in different ways and as a diversified miner policy actions. As an important we will benefit from this. For example, climate change policies placing a carbon price part of the value chain, we on emissions will result in downside impacts on lower-grade iron ore. However, these believe we can contribute and same policies will benefit tier one copper and aluminium assets; benefit from this cross-business – The relative cost position of most of our assets is expected to remain robust within and multi-stakeholder their respective industry cost curves. Our hydro-based aluminium assets in Canada collaboration. will consolidate their position at the bottom of a steeper aluminium cost curve. The overall cost position of our iron ore and copper businesses will be relatively unchanged, with suppliers of low-grade iron ore expected to face much stronger margin compression; – Impacts are likely to materialise over the long term and we have a range of options, and the financial and operational capacity to execute these, to (i) mitigate risks; (ii) reduce direct emissions through a range of abatement projects and (iii) to offset remaining emissions where commercially justified.

22 Our approach to climate change Our approach to climate change 23

What is helpful? Royal Dutch Shell plc This example shows a description of governance arrangements and a specific reference to climate Annual Report and Form 20F 2018 change in the viability statement assessment. p63 and 74

Metrics and targets Examples

An approach is to refer to competitive advantage with Diageo plc, AXA p66-68 reference to the business model, or produce metrics Group and Aviva In order to help investors understand how climate-related issues, and their seen as key to this with reference to climate change, plc impact, are measured, including metrics, data and financially-relevant such as ‘Climate-Value-at-risk’ or carbon footprints and how these are assessed and used information, companies should ask themselves… One approach is to state that remuneration will be SSE plc and p42-45 • Wha t information is most relevant to monitoring and managing the impacts of climate-related issues? linked to climate-related metrics Royal Dutch and 64 How were these identified and how do they link to the strategy and business model? + Shell plc • Has a strategy been defined, with related metrics to measure progress, setting the company on a One approach is to refer to where a committee has National Grid p55 course to net-zero carbon by 2050, and for interim stages in between now and then? What metrics are been involved in the consideration of climate-related plc monitored in relation to mitigation and adaptation? If metrics are not related, what metrics are being issues or the related disclosure used, and what timelines has it set? • What signals or specific climate scenarios are monitored? One approach is to refer to scope 1, 2 and 3 emissions Fresnillo plc P69 and related intensity • Has the company considered whether issues regarding water, energy, land use and waste management may be material, and if so, how these should be measured? + • What do the metrics being monitored and managed indicate about the future direction of the company? An approach is to present performance in a user-friendly UBS Group AG, p70-72 manner. Such attributes include clarity of information, DS Smith plc How is this information used? How are they being integrated into day-to-day business management and presentation of performance across time, descriptions and National reporting? of the metrics being measured and target-setting Grid plc • What is the scope and boundary of the information presented? Is this the same across all information An approach is to present different scopes of Go-Ahead p73, 74 presented? greenhouse gas emissions, including Scope 3, across Group plc, time, with methodologies noted, or to explain changes Associated • To what level of oversight or assurance have the metrics been subjected? in calculations, changes from the previous year and British Foods plc • What external data, or external expertise, has the company relied upon? scope and boundary • Are the metrics disclosed calculated consistently? Is trend data provided? • Which methodology has been used for constructing the metrics? Is this comparable to other companies in the sector? TCFD expects companies to: • Have estimates been used in compiling measures or targets? Can you describe the calculation of these? + Disclose the metrics and targets used to assess and manage relevant climate- related risks and opportunities where such information is material • What are the company’s Scope 1, Scope 2 and, where relevant, Scope 3 greenhouse gas emissions? Is the GHG Protocol and/or another industry-specific methodology used for this calculation? + • Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management • Is an internal carbon price used? If so, what is it and for which purposes is it used? + process • What is the company trying to achieve in relation to climate resilience and what targets has it set? Have • Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse gas the targets been achieved, and what comes next? + (GHG) emissions, and the related risks • How are metrics being integrated into the remuneration policies? Is this the most effective linkage • Descr ibe the targets used by the organisation to manage climate-related possible? + risks and opportunities and performance against targets

+ notes where the questions align with expectations for reporting in the TCFD’s ‘Guidance for all sectors’

Performance against 2020 targets(i)

Water stewardship

2020 target KPI Performance Progress Reduce water use % improvement Δ We have made significant further progress this year at our sites, driven by through a 50% in litres of water 6.0% continuous improvement and innovation projects in brewing, maltings and improvement in water used per litre 2019 distilling operations worldwide. use efficiency of packaged 3 product This year, 16,442m of water were used for agricultural purposes on land under 43.8% our operational control. We report this separately from water used in our direct cumulative operations. The volume of water we recycled or reused in our own production was Climate-related corporate reporting 1,029,305m3, representing 5.2% of total water withdrawals. 66 Return 100% of % reduction in Δ While we met all regulatory requirements on wastewater at our sites and have wastewater from our wastewater 13.6% made good progress this year, we recognise we will not achieve our full target operations to the polluting power 2019 by 2020. environment safely measured in BOD (‘000 tonnes) Over 80% of our sites have achieved the 2020 target. We are now concentrating 36.0%Diageo plcon our remaining cluster of sites. As part of a range of solutions, we are planning What is helpful? cumulative further investment in wastewater treatment together with the use of new technologies to create value from our by-products. Diageo presents metrics relevant to the business model, Annual Report 2019 outlining targets, progress and definitions. Replenish the amount % of water p54 This year we replenished 11.8% of the total water used in our final product, and of water used in our replenished in 11. 8% cumulatively 60.5% of the water used in water-stressed locations is now final product in water-stressed 2019 replenished. Significant progress will be required in Nigeria, Ghana and Kenya water-stressed areas areas (m3) 60.5% in 2020 to ensure we achieve our ambitious target. 54 DIAGEO ANNUAL REPORT 2019 cumulative Equip our suppliers with % of key suppliers We engaged 128 suppliers to disclose their water management practices tools to protect water engaged in water 86% through CDP’s Supply Chain Water Programme, with an 86% response rate. resources in our most management 2019 We prioritised more than 100 third-party operators for more in-depth water risk (i) water-stressed locations practices assessment and support, and have begun mapping site water performance Performance against 2020 targets and rolling out our water guidance for the most water stressed.

Water stewardship Carbon

2020 target KPI Performance Progress 2020 target KPI Performance Progress Reduce water use % improvement Δ We have made significant further progress this year at our sites, driven by Reduce absolute % reduction in Δ We made important progress this year, achieving a 5.9% decrease in carbon through a 50% in litres of water 6.0% continuous improvement and innovation projects in brewing, maltings and greenhouse gas absolute GHG 5.9% emissions. In addition to continuous improvement at our operations and fuel improvement in water used per litre distilling operations worldwide. 2019 emissions from direct (kt CO2e) 2019 switching, we have purchased energy attribute certificates to support our use efficiency of packaged 3 operations by 50% decarbonisation strategy. product This year, 16,442m of water were used for agricultural purposes on land under 43.8% our operational control. We report this separately from water used in our direct 44.7% cumulative As a signatory to RE100, we aim to source 100% of our electricity from renewable operations. cumulative sources by 2030. This year 45.4% of electricity at our production sites came from renewable sources such as wind, hydro and solar (2018 – 18.5%). In the United The volume of water we recycled or reused in our own production was Kingdom, 100% of our electricity came from renewable sources. 1,029,305m3, representing 5.2% of total water withdrawals. We use the World Resources Institute/World Business Council for Sustainable Return 100% of % reduction in Δ While we met all regulatory requirements on wastewater at our sites and have Development Greenhouse Gas Protocol as a basis for reporting our emissions, wastewater from our wastewater 13.6% made good progress this year, we recognise we will not achieve our full target and we include all facilities where we have operational control for the full operations to the polluting power 2019 by 2020. financial year. environment safely measured in BOD (‘000 tonnes) Over 80% of our sites have achieved the 2020 target. We are now concentrating Diageo’s total direct and indirect carbon emissions (location/gross) this year 36.0% on our remaining cluster of sites. As part of a range of solutions, we are planning Δ cumulative were 785,545 tonnes (2018 – 782,294 tonnes), comprising direct emissions further investment in wastewater treatment together with the use of new (Scope 1) of 620,573Δ tonnes (2018 – 620,608 tonnes), and indirect (Scope 2) technologies to create value from our by-products. emissions of 164,971Δ tonnes (2018 – 164,971 tonnes). The intensity ratio for this year was 185 grams per litre packaged (2018 – 186 grams per litre packaged).

Replenish the amount % of water This year we replenished 11.8% of the total water used in our final product, and Achieve a 30% reduction % reduction in Our total supply chain carbon footprint this year was 3.165 million tonnes, a 5.9% of water used in our replenished in 11. 8% cumulatively 60.5% of the water used in water-stressed locations is now in absolute greenhouse absolute GHG 5.9% improvement and important progress towards our target. final product in water-stressed 2019 replenished. Significant progress will be required in Nigeria, Ghana and Kenya gas emissions along the (kt CO2e) 2019 water-stressed areas areas (m3) in 2020 to ensure we achieve our ambitious target. total supply chain We engaged suppliers directly on measuring and managing their carbon 60.5% 27.1% emissions and made further data analysis improvements. This year we received cumulative responses from 86% of the 224 suppliers we engaged through the CDP, and 50% cumulative of these suppliers reported that they had emissions reduction targets. Equip our suppliers with % of key suppliers We engaged 128 suppliers to disclose their water management practices tools to protect water engaged in water 86% through CDP’s Supply Chain Water Programme, with an 86% response rate. Ensure all our new % of new Eliminating HFCs plays a role in reducing our overall carbon footprint. 99.5% of refrigeration equipment 99.5% the 48,000 new fridges we have purchased since July 2015 were HFC-free. resources in our most management 2019 We prioritised more than 100 third-party operators for more in-depth water risk water-stressed locations practices assessment and support, and have begun mapping site water performance equipment in trade sourced HFC-free 2019 and rolling out our water guidance for the most water stressed. is HFC-free, with a from 1 July 2015 reduction in associated greenhouse gas emissions from 2015 Carbon

2020 target KPI Performance Progress Reduce absolute % reduction in Δ We made important progress this year, achieving a 5.9% decrease in carbon greenhouse gas absolute GHG 5.9% emissions. In addition to continuous improvement at our operations and fuel emissions from direct (kt CO2e) 2019 switching, we have purchased energy attribute certificates to support our operations by 50% decarbonisation strategy. 44.7% As a signatory to RE100, we aim to source 100% of our electricity from renewable cumulative sources by 2030. This year 45.4% of electricity at our production sites came from renewable sources such as wind, hydro and solar (2018 – 18.5%). In the United Kingdom, 100% of our electricity came from renewable sources. We use the World Resources Institute/World Business Council for Sustainable Development Greenhouse Gas Protocol as a basis for reporting our emissions, and we include all facilities where we have operational control for the full financial year. Diageo’s total direct and indirect carbon emissions (location/gross) this year were 785,545Δ tonnes (2018 – 782,294 tonnes), comprising direct emissions Quick read Introduction (ScopeRegulatory 1) of 620,573Δ tonnesand market (2018 – 620,608 tonnes),Investor and indirect expectations (Scope 2) Appendix A – questions Appendix B – examples Appendix C – participants Appendix D – regulatory emissions of 164,971Δ tonnes (2018 – 164,971 tonnes).1 The intensity ratio for this 2 3 4 5 year wasoverview 185 grams per litre packaged (2018 – 186 andgrams company per litre packaged). views and recommended of developing practice and process and market initiatives disclosures Achieve a 30% reduction % reduction in Our total supply chain carbon footprint this year was 3.165 million tonnes, a 5.9% in absolute greenhouse absolute GHG 5.9% improvement and important progress towards our target. gas emissions along the (kt CO2e) 2019 total supply chain We engaged suppliers directly on measuring and managing their carbon emissions and made further data analysis improvements. This year we received 27.1% responses from 86% of the 224 suppliers we engaged through the CDP, and 50% cumulative of these suppliers reported that they had emissions reduction targets.

Ensure all our new % of new Eliminating HFCs plays a role in reducing our overall carbon footprint. 99.5% of refrigeration equipment 99.5% the 48,000 new fridges we have purchased since July 2015 were HFC-free. equipment in trade sourced HFC-free 2019 is HFC-free, with a from 1 July 2015 reduction in associated greenhouse gas emissions from 2015 capacity, one can simulate which companies will be the likely beneficiaries if/when 2°C policies are implemented Climate-relatedon a global corporate level. reporting 67 capacity,capacity,oneone cancansimulatesimulate whichwhich companies will bebe thethe likely likely beneficiariesbeneficiaries if/when if/when2°C2°C policies policies are are implemented implemented onon a a global global level. level. AXA Group Climate-related investment & insurance report 2018 p9, 10

What is helpful? This example includes a description of AXA’s forward-looking indicators and the quantification of a ‘climate-value-at-risk’ metric outlining exposure. ecause of the relationship established between interest cover and credit spread this enables to determine the difference that these costs could have on the credit spread of the issuer. herefore details about the default risk of the issuer the A forward-looking “Climate VaR” term structure of the bond and the implied cost of a C scenario are the determining factors in deriving a Climate VaR for A forward-looking “Climate VaR” bonds. A forward-looking “Climate VaR” Taken together, the “policy risk” model combined with the “technology opportunities” model assess the downside costs lthough is still in a testing phase of this “Climate VaR” approach some preliminary results can be shared below. Taken together, the “policy risk” model combined with the “technology opportunities” model assess the downside costs of climateTaken together, change policythe “policy as well risk” as modelthe additional combined green with revenuesthe “technology that are opportunities” attainable by model the most assess innovati the downsideve companies costs in of climate change policy as well as the additional green revenues that are attainable by the most innovative companies in of climate change policy as well as the additional green revenues that are attainable by the most innovative companies in theirtheir field. field. Forward Forward--lookinglooking quantitative quantitative results results areare usedused,, in in the the form form of of company company specific specific costs costs and and revenues, revenues, to calculate to calculate CLIMATE VALUE AT RISK PORTFOLIO ANALYSIS FOR EQUITIES AND CORPORATE BONDS a “Climatetheira “Climate field. Value F Value-orward-at-atRisk--lookingRisk” (Climate” (Climate quantitative VaR) VaR) per per results security securityare usedin AXA, in’s’s theportfolios. portfolios. form of company specific costs and revenues, to calculate a “Climate Value-at-Risk” (Climate VaR) per security in AXA’s portfolios. Climate Vale at Rik otolio nali o itie ThisThisClimate Climate VaR VaR per per security security is iscalcul calculatedated for for equitiesequities andand corporate corporate bonds bonds to tounderstand understand the theimpactimpact that thatfuture future costs costs o – itie otolio (total €16Bn) and/orThisand/or revenuesClimate revenues VaR might permight securityhave have on on is the calculthe current currentated forpricing pricing equities of these and corporatesecurities. securities. bonds A ADividend Dividend to understand Discount Discount Model the Modelimpact (DDM) (DDM) that is also futureis usedalso costs usedto to and/or revenues might have on the current pricing of these securities. A Dividend Discount Model (DDM) is also used to computecompute the theimpact impact that that new, new, climate climate policy policy costscosts and rrevenuesevenues will will have have on on future future profits, profits, which which justify justify the current the current enaio Climate VaR oneta Rik compute the impact that new, climate policy costs and revenues will have on future profits, which justify the current marketmarket value. value. The The Climate Climate VaR VaR is is the the exact exact differencedifference betweenbetween the the current current market market value value of aof security a security and theand “new” the “new” anition Rik otential ot an eene go eoe ta an market value. The Climate VaR is the exact difference between the current market value of a security and the “new” presentpresent value value after after future future climate climate change change costscosts and/or revenuesrevenues have have been been included included into into the theDDM. DDM. The TheClimate Climate VaR VaR . presenttherefore value represents after future the percentageclimate change of a costscompany’s and/or market revenues value have that been is poised included to decreaseinto the DDM.or increaseThe Climate given the VaR C enaio therefore represents the percentage of a company’s market value that is poised to decrease or increase given the Resulting in potential costs therefore represents the percentage of a company’s market value that is poised to decrease or increase given the occurrenceoccurrence of climate of climate change change costs costs or or revenues revenues relatedrelated to each each scenario. scenario. ThisThis means means that that the the Climate Climate VaR VaRcan be can negative be negative een enolog otnitie . occurrenceor positive, of depending climate change on risks costs and orupsides. revenues related to each scenario. This means that the Climate VaR can be negative Resulting in potential revenues or positive, depending on risks and upsides. or positive, depending on risks and upsides. eigte Rik enaio

ggegate Climate VaR .

We have covered 98% of AXA’s listed equities portfolio with this analysis. he Climate VaR for the roup’s euities portfolio is displayed in the first table above. t is worth noting that the policy risk analysis and technology opportunity analysis results aggregately in a slight downside risk for the euity portfolio under a C scenario. ectors having the highest potential costs are in decreasing order the utilities transportation energy automobile and foodbeverage. ithin each sector certain issuers are much better euipped to face the low carbon transition even in typically highrisk sectors such as utilities energy and materials. or instance in the aterials sector which contains large industries such as cement and steel manufacturers ’s investments are poised to gain value even under a C scenario. his shows that our portfolio managers, without having formally applied a “Climate VaR” approach to their investment decisions, have selected companies that have higher “low carbon” innovation potential.

e are still reviewing and assessing the detailed outputs of this experimental Climate VaR analysis in order to determine whether it is sufficiently robust to be deployed on our uity portfolios. evertheless we have been able to cover of ’s listed equities portfolio by this analysis as of uly and believe this work carries many insights into the much researched area of climate risk analysis. Default risk and spreads DefaultSince the risk payout and spreads profile of a bond is significantly different from equity, the effect of climate change onto the bond price, Default risk and spreads Climate Vale at Rik otolio nali o Cooate on Sincebased the on payout the change profile in default of a bond risk isof significantly the issuer, must different be carefully from equity, modelled the and effect cannot of climate simply change inherit theonto risk the values bond from price, Sincethe the associated payout profile equity. of Thea bond higher is significantlythe default risk, different the lower from the equity, price thefor theeffect bond. of climate Credit riskchange of bonds onto isthe typically bond price, based on the change in default risk of the issuer, must be carefully modelled and cannot simply inherit the risk values from o – on otolio (total €187Bn) basedtheexpressed on associated the change as credit equity. in spread, default The the higherrisk difference of the defaultissuer, in risk mustrisk, free interest thebe carefullylower rate the and modelled price a fair for interest andthe bond.cannot rate to Credit simply be paid risk inherit for of by bonds anthe issuer. risk is typicallyvalues from Quick read Introduction Regulatory and market Investor expectations Appendix A – questions Appendix B – examples Appendix C – participants Appendix D – regulatory the associated equity. The higher the default risk, the lower the price for the bond.1 Credit risk of bonds 2is typically 3 enaio 4 Climate VaR 5 oneta Rik expressedWhile future as creditemission spread, reduction the difference costs would in risk have free no interestimpactoverview onrate the and bond a fair price interest per se rate – andthey to companybe must paid be for viewspaid by foran issuer.entirelyand by recommended of developing practice and process and market initiatives expressedthe shareholder as credit –spread,they would the differencestill indeed in influence risk free the interest EBIT of ratea company. and a fair Essentially, interest rate future to be costs paid must for beby subtractedan issuer. While future emission reduction costs would have no impact on the bond price per se – they must be paid for entirelydisclosures by anition Rik otential ot an eene from future EBIT, thus effectively reducing interest cover. Via this process, the development of interest cover over time is Whilethe future shareholder emission – they reductionwould still costs indeed would influence have no the impact EBIT of ona thecompany. bond price Essentially, per se –futurethey costsmust mustbe paid be subtractedfor entirely by C enaio . determined, with and without emission reduction costs considered. thefrom shareholder future EBIT, – they thuswould effectively still indeedreducing influence interest cover. the EBIT Via ofthisa process,company. the Essentially, development future of interest costs cover must over be subtracted time is Resulting in potential costs fromdetermined future EBIT,, with thus and effectively without emission reducing reduction interest costscover. considered. Via this process, the development of interest cover over time is een enolog otnitie . Resulting in potential revenues determined9 , with and without emission reduction costs considered. eigte Rik enaio 9 9 Risk management, MetricsRisk and management, Targets Metrics and Targets Aviva’s risk management framework sets out how we identify, Transition risks and opportunities Aviva’s risk management framework sets out how we identify, Transitionmeasure, risks manage, and opportunities monitor and report on the risks to which we are, For transition risks and opportunities, the metrics and tools used measure, manage, monitor and report on the risks to which we are, For transitionor couldrisks and be, exposedopportunities, and the the accountabilities metrics and tools of management,used the include: or could be, exposed and the accountabilities of management, the include: risk function and internal audit with respect to enterprise-wide risk risk function and internal audit with respect to enterprise-wide risk management. ●● Carbon foot-printing of investments management. ●● Carbon foot-printing of investments ●● Aviva’s operational carbon emissions ●● Aviva’s operational carbon emissions Aviva’s process for identifying ●● Portfolio Warming Potential Aviva’s process for identifying ●● Portfolio Warming Potential climate-related risks and opportunities climate-related risks and opportunities Aviva’s risk spectrum (see figure 4) determines the significance of the Carbon foot-printing of investments Carbon foot-printing of investments Aviva’s risk spectrum (see figure 4) determines the significance of the impact and timescale for different external issues. Aviva considers We use carbon foot-printing and weighted average carbon intensity XII impact and timescale for different external issues. Aviva considers We use carbon foot-printing and weighted average carbon intensity data (tCO2e /$m sales) to assess and manage the exposure of climateXII change to be a material long-term risk to our business data (tCO2e /$m sales) to assess and manage the exposure of climate change to be a material long-term risk to our business model, and a proximate riskXI, because its impacts are already being our assets to a potential increase in carbon prices in both our XI our assets to a potential increase in carbon prices in both our XIII model, and a proximate risk , because its impacts are already being felt. We are therefore taking action now to mitigate and manage the shareholder and participating funds . Despite being backward shareholder and participating fundsXIII. Despite being backward felt. We are therefore taking action now to mitigate and manage the impacts of climate change both today and in the future. Through looking, this measure provides a good proxy for assessing exposure looking, this measure provides a good proxy for assessing exposure impacts of climate change both today and in the future. Through these actions, Aviva continues to build resilience to climate-related of our investments to a potential increase in carbon prices. Carbon of our investments to a potential increase in carbon prices. Carbon Riskthese actions, Avivamanagement, continues to build resilience to climate-related Metricstransition, physicaland and litigation Targets risks including the risk of assets intensity measures how carbon efficient Aviva’s investment portfolio intensity measures how carbon efficient Aviva’s investment portfolio transition, physical and litigation risks including the risk of assets becoming stranded. is in terms of emissions. It also allows for comparison regardless of is in terms of emissions. It also allows for comparison regardless of Aviva’sbecoming risk stranded.management framework sets out how we identify, Transition risks and opportunities portfolio size but is very sensitive to outliers. Climate-relatedportfolio corporate size reportingFigure but 4: is Aviva very Groupsensitive Risk toSpectrum outliers. - October 2018. Source: Aviva. 68 measure, manage, monitor and report on the risks to which we are, For transition risks and opportunities, the metrics and tools used In line with the TCFD guidelines, we monitor the carbon footprint of orFigure could 4: Aviva be, exposed Group Risk and Spectrum the accountabilities - October 2018. Source: of management, Aviva. the In line with the TCFD guidelines, wess monitor the carbon footprint of include: usine Eco our credit and equity portfolio on a regular basis. We measure the & b nom gy Fina ic risk function and internalsiness audit withE respect to enterprise-wide risk our credit and equity portfolioolo e onats a regular basis.nci We& measure the bu cono n thr al M “weighted average carbon intensity” – i.e. the carbon intensity of y & F m ●● ch del ar log ats inanc ic & Carbon foot-printingTe ofo investments ke Aviva plc management.no thre ial m ts ch el Ma What“weighted is helpful? average carbon intensity” – i.e. the carbon intensity of e od rke our portfolio weighted by the size of our investments. The carbon T m ts Aviva plc’s Climate-Related Financial Disclosure 2018 Aviva describesour●● Aviva’s portfolio how operationalit assesses weighted carbon-footprint carbon by the sizeemissions of ofits investments,our investments. and how Theit uses carbon this information. intensity metric providesp11 a proxy assessment of a company’s intensity metric provides a proxy assessment of a company’s l R exposure to a potential increase in carbon prices and its exposure ●● a e Portfolio Warmingt Potential n g Aviva’sl process for identifying e u R exposure to a potential increase in carbon prices and its exposure l a e a to changes in climate and energy policies and a shift to low-carbon t m g t n o o e u r l i r a to changes in climatev and energy policies and a shift to low-carbony m t n technologies more generally. o o climate-related risks and opportunities E r i r v y n technologies more generally. Aviva’sE risk spectrum (see figure 4) determines the significance of the Carbon foot-printing of investments Becoming Less Proximate Remote Figure 5: Weighted average carbon intensity (tCO2e/$m sales) of corporate We use carbon foot-printing and weighted averageProximate carbon intensity impact and timescale for differentBecoming external issues.Less Aviva considers (Action) remote Proximate Remote Figure 5: Weighted average carbon intensity (tCO2e/$m sales) of corporate(Monitor) Proximate remote XII (Mobilise) (Analyse) credit and equities in Aviva’s shareholder and participating funds as at (Action) (Monitor) data (tCO2e /$m sales) to assess and manage the exposure of climate change to be a material long-term(Mobilise) risk(Analyse) to our business credit and equities in Aviva’s shareholder and participating funds as at 31/12/2018. Source: Aviva/MSCI. XI our assets to a potential increase in carbon prices in both our 31/12/2018. Source:H Aviva/MSCI. model, and a proximate risk , because its impacts are already being l e a a XIII c Represents 39% of Represents 6% of i H l t l shareholder andt participating funds . Despite being backward i h l felt.e We are therefore taking action now to mitigate anda manage the Aviva's participating & Aviva's participating & a c Represents 39% of Represents 6% of o i l t P t i shareholder funds shareholder funds h l looking,Aviva's this participating measure & providesAviva's a participating good proxy & for assessing exposure impacts of climate change both today and in the future.o Through P shareholder funds shareholder funds these actions, Aviva continues to build resilience to climate-related of our investments to a potential increase in carbon prices. Carbon 200 120 intensity200 measures how carbon efficient Aviva’s investment portfolio120 180 97% transition, physical and litigation risks including the risk of assets 100 180 S al oc 97% itic 160 is in terms of emissions. It alsoieta allows for comparisonpol regardless100 of becoming stranded.S al l Geo- oc itic 160 ieta pol 140 80 l Geo- portfolio size but isClimate very relatedsensitive risk to outliers. 140 80 185 189 186 Figure 4: ClimateAviva Grouprelated risk Risk Spectrum - October 2018. Source: Aviva. 120 185 189 186 60 In line120 with the TCFD guidelines, we monitor the carbon footprint of

e / $M Sales 100 60 2 42% siness Ec our credit and equity portfolio on a regular basis. We measure the 37% bu on e / $M Sales 100 2 & o tCO gy Fin mi 42% 60 40 lo eats anc c & 37% no thr ial M “weighted average carbon intensity” – i.e. the carbon intensity of h l tCO ec de ark 60 40 T o et Aviva’s process for assessing, managing 40 m s 20 our portfolio40 weighted by the size of our investments. The carbon Aviva’s process for assessing, managing 20 (%) coverage data Carbon intensity intensity metricand provides monitoring a proxy assessment climate-related of a company’s 20 risks and monitoring climate-related risks 20 (%) coverage data Carbon intensity 0 0 l R exposure to a potential increase in carbon prices and its exposure Credit Equities Credit + Equities a 0 0 t e and opportunities n g e u Credit Equities Credit + Equities l a Weighted average carbon intensity Carbon intensity data coverage (%) andm opportunities to changes in climate and energy policies and a shift to low-carbon t o o We use a variety of metrics and tools to manage and monitor r i r v y Weighted average carbon intensity Carbon intensity data coverage (%) Wen use a variety of metrics and tools to manage and monitor technologies more generally. E our alignment with global or national targets on climate change We have the objective to reduce over time the carbon intensity our alignment with global or national targets on climate change Becoming Less We have themitigation objective as to wellreduce as the over potential time the financial carbon intensity impact of climate- Proximate Remote Figure 5: Weighted average carbon intensity (tCO2e/$m sales) of corporate of our investment portfolio in order to reduce its sensitivity to an Proximate remote mitigation as well as the (Action)potential financial impact(Monitor) of climate- related risks and opportunities on our business. Whilst recognising (Mobilise) (Analyse) creditof our and investment equities in portfolioAviva’s shareholder in order andto reduce participating its sensitivity funds as atto an increase in carbon prices. This could be achieved through reducing related risks and opportunities on our business. Whilst recognising 31/12/2018.increase in Source: thecarbon limitations Aviva/MSCI. prices. ofThis the could metrics be achievedand tools through used (for reducing example the scope our exposure to the most carbon intensive sectors such as utilities,

H the limitations of the metrics and tools used (for examplel the scope e a our exposureof emissionsto the most or carbon sectors intensive covered) sectors and that such some as utilities,are backward a c Represents 39% of Represents 6% of i oil and gas, and building materials. l t t i of emissionsh or sectors covered) and that some arel backward Aviva's participating & Aviva's participating & o oil and gas,looking, and building we believe materials. they are still valuable in supporting our climate- P shareholder funds shareholder funds looking, we believe they are still valuable in supporting our climate- related governance, strategy and risk management. related governance, strategy and risk management. 200 120 180 97% l 100 S ca oci liti Quick read 160 Introduction Regulatory and market Investor expectations Appendix A – questions Appendix B – examples Appendix C – participants Appendix D – regulatory eta -po 1 2 3 4 5 l Geo XI The risk should be subject to managementoverview action and be fully understoodand company and views quantified. and recommended of developing practice and process and market initiatives 140 80 disclosures XI TheClimate risk should related be risksubject to management action and be fully understood and quantified. XII185 Scope 1 and Scope 2 emissions.189 186 XII Scope 1 and Scope 2 emissions. 120 XIII Where we refer to Shareholder funds this represents shareholder funds60 (Figures 8,10, 13 and 14) and the shareholder component of participating funds. Where we refer to Shareholder and participating funds this represents shareholder funds and all participating funds (Figures 5,6 and 9). In both cases the data has been taken at year end 2018 from our internal risk system used to monitor credit risk limits XIII Where we refer to Shareholder funds this represents shareholder funds (Figures 8,10, 13 and 14) and the shareholdere / $M Sales 100 component of participating funds. Where we refer to Shareholder and participating 2 42% funds this represents shareholder funds and all participating funds (Figures 5,6 and 9). In both cases the data has been taken37% atand year as enda source 2018 forfrom Solvency our internal II disclosures. risk system used to monitor credit risk limits and as a source for Solvency II disclosures. tCO 60 40 Aviva’s process for assessing, managing 40 aviva.com 11 aviva.com20 11 and monitoring climate-related risks 20 (%) coverage data Carbon intensity 0 0 and opportunities Credit Equities Credit + Equities We use a variety of metrics and tools to manage and monitor Weighted average carbon intensity Carbon intensity data coverage (%) our alignment with global or national targets on climate change We have the objective to reduce over time the carbon intensity mitigation as well as the potential financial impact of climate- of our investment portfolio in order to reduce its sensitivity to an related risks and opportunities on our business. Whilst recognising increase in carbon prices. This could be achieved through reducing the limitations of the metrics and tools used (for example the scope our exposure to the most carbon intensive sectors such as utilities, of emissions or sectors covered) and that some are backward oil and gas, and building materials. looking, we believe they are still valuable in supporting our climate- related governance, strategy and risk management.

XI The risk should be subject to management action and be fully understood and quantified. XII Scope 1 and Scope 2 emissions. XIII Where we refer to Shareholder funds this represents shareholder funds (Figures 8,10, 13 and 14) and the shareholder component of participating funds. Where we refer to Shareholder and participating funds this represents shareholder funds and all participating funds (Figures 5,6 and 9). In both cases the data has been taken at year end 2018 from our internal risk system used to monitor credit risk limits and as a source for Solvency II disclosures.

aviva.com 11 Fresnillo plc Annual Report and Accounts 2018 77

STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS

ENERGY AND CLIMATE Fresnillo plc Annual Report and Accounts 2018 77 Our goal is to improve energy efficiency and progressively integrate renewables and clean technologies into our energy mix, in order to STRATEGIC REPORT mitigate the physical, regulatory and reputational risks of climate change. CORPORATE GOVERNANCE FINANCIAL STATEMENTS

Relevance and risk in the lifecycle of mining

EXPLORATION DEVELOPMENT OPERATION CLOSURE Risk: High Medium Low

ENERGY FresnilloAND CLIMATE plc Annual Report and Accounts 2018 77

MiningOur is energy goal isintensive. to improve We use energy PERFORMANCEefficiency and progressively integrate STRATEGIC REPORT energyrenewables atFresnillo every stage plc Annualand of the cleanReport value and chaintechnologies AccountsIn 2018 spite of77into the increaseour energy in energy mix, demand, in order we reduced to our greenhouse gas emissions. and mitigatethis accounts the for aphysical, significant portionregulatoryThis and reduction reputational was drivenCORPORATE by risks an increase of GOVERNANCE climate of renewables change. in our energy mix, going from of our overall costs. We use fossil fuels in 9.09% in 2017STRATEGIC to 19.24% REPORTFINANCIAL in 2018. This STATEMENTS prevented the emission of 26,000 tonnes of CO2e. the extraction and haulage of ore and CORPORATE GOVERNANCE wasteRelevance rock removal, and risk in the while lifecycle electricity of mining is GLOBAL GHG EMISSIONS FOR THE PERIOD 1 JANUARY 2018 TO 31 DECEMBER 2018 FINANCIAL STATEMENTS Climate-related corporate reporting used EXPLORATIONin our processing DEVELOPMENT plants. As OPERATION mining CLOSURE GHG emissions (tonnes of CO e) Energy (MWhe) 69 operationsRisk: go High deeper Medium in response Low to 2 decreasing ore grades, we expect our Reporting Comparison Reporting Comparison ENERGY AND CLIMATE energy demand to increase. year year year year 2018 2012 2018 2012 ENERGYOur goal AND is CLIMATE to improve energy efficiency and progressively integrate PERFORMANCE Fresnillo plc INTEGRATEMining RENEWABLESis energy intensive. We use Scope 1 (direct emissions): Combustion Ourrenewables goal is to andimprove clean energy technologies efficiencyAND into energy andCLEAN ourprogressively atTECHNOLOGIES everyenergy stage mix, of integrate the in value order chain toof fuelIn (mobile spite of and the stationary increase sources).in energy demand,530,377 we reduced375,121 our greenhouse2,042,982 gas1,385,448 emissions. and this accounts for a significant portion This reduction was driven by an increase of renewables in our energy mix, going from Annual Report and mitigate the physical, regulatory andKEY ACTIVITIES: reputational risks of climate change. renewables and clean technologies into ourof our energy overall costs.mix, Wein order use fossil to fuels in Scope9.09% 2 (indirect in 2017 emissions): to 19.24% Electricity in 2018. This prevented the emission of 26,000 tonnes of COe. • Increase the use of renewables 2 Accounts 2018 mitigate the physical, regulatory and reputationalthe extraction risks and of haulage climate of ore change. and purchased from the Mexican National Grid in our electricity supply mix. Relevance and risk in the lifecycle of mining waste rock removal, while electricity is (CFE),GLOBAL WindForce GHG EMISSIONSPeñoles (FEISA) FOR THE and PERIOD 1 JANUARY 2018 TO 31 DECEMBER 2018 p77 • Monitor the development of clean Thermoelectric Peñoles (TEP). 286,697 329,245 950,547 420,615 RelevanceEXPLORATION and risk in the DEVELOPMENT lifecycle of mining OPERATION CLOSURE used in our processing plants. As mining technologies such as ventilation GHG emissions (tonnes of CO e) Energy (MWhe) Risk:EXPLORATION High DEVELOPMENT Medium OPERATION Low CLOSURE operations go deeper in response to 2 systems and electric underground Intensity measurement: Emissions and decreasing ore grades, we expect our Risk: High Medium Low vehicles. energy reported above per tonne of Reporting Comparison Reporting Comparison energy demand to increase. mineral processed. 0.016 year 0.013 year 0.059 year 0.034 year 2018 2012 2018 2012 What is helpful? Mining is energy intensive. We use PERFORMANCEOPERATIONAL EXCELLENCE INTEGRATE RENEWABLES Methodology:Scope 1 We (direct have reported emissions): on all ofCombustion the emission sources required under the Companies Act 2006 (Strategic These Fresnillo extracts Miningenergy is at energy every intensive. stage of theWe usevalue chain PERFORMANCEInAND spite ENERGY of the increaseEFFICIENCY in energy demand, we reduced our greenhouse gas emissions. AND CLEAN TECHNOLOGIES Reportof and fuel Directors’ (mobile Reports) and stationary Regulations sources). 2013. These sources530,377 fall within our operational375,121 control.2,042,982 We do not have1,385,448 display performance energyand this at accounts every stage for of a the significant value chain portionIn spiteThisKEY of reduction ACTIVITIES:the increase was in energydriven demand,by an increase we reduced of renewables our greenhouse in our gas energy emissions. mix, going from and this accounts for a significant portion This reductionKEY ACTIVITIES:was driven by an increase of renewables inresponsibility our energy for mix,any emission going fromsources that are not included in our Consolidated Statement. We have used The WRI/ categorised across of our overall costs. We use fossil fuels in 9.09% in 2017 to 19.24% in 2018. This preventedWBCSD theScope emission Greenhouse 2 (indirect of Gas 26,000 Protocol: emissions): tonnes A Corporate Electricity of CO Accountinge. and Reporting Standard (Revised Edition). of our overall costs. We use fossil fuels in 9.09%• inIncrease 2017• Increase to 19.24% the energythe in 2018. use efficiency Thisof renewables prevented of the emission of 26,000 tonnes of COe. 2 the extraction and haulage of ore and our processing plants and set targets Scopepurchased 1: All direct GHG from emissions. the Mexican2 National Grid different areas, with the extraction and haulage of ore and GLOBAL GHGin our EMISSIONS electricity FOR supply THE PERIOD mix. 1 JANUARYScope 2018(CFE), 2: Indirect TO 31WindForce DECEMBER GHG emissions Peñoles 2018 from consumption(FEISA) and of purchased electricity. waste rock rock removal, removal, while while electricity electricity is is GLOBAL GHGfor ourEMISSIONS mines. FOR THE PERIOD 1 JANUARY 2018 TO 31 DECEMBER 2018 metrics presented with • Monitor the development of clean Thermoelectric Peñoles (TEP). 286,697 329,245 950,547 420,615 used in in our our processing processing plants. plants. As miningAs mining • Optimise truck fleet performance ENERGY – GHG PROFILE – 2018 five years’ worth of data. technologies such as ventilationGHG emissions (tonnes of CO e) Energy (MWhe) operations go deeper in response to GHG emissions (tonnes of CO2e) Energy2 (MWhe) operations go deeper in response to and systemstest diesel and additives electric to underground improve Intensity measurement: Emissions and decreasing ore ore grades, grades, we we expect expect our our Energy 45.07% 23.18% 5.15% 7.36%0.480.48% 18.77% fuel vehicles.combustion at our open pitReporting ReportingComparisonenergyComparisonReporting reported aboveComparisonReporting per tonneComparison of energy demand demand to to increase. increase. operations, and locate waste dumpsyear GHGyearyearmineral processed.yearyear yearyear 42.85%year 0.01622.06% 10.97%0.013 0.05924.11%0 0.034 2018 20182012 20122018 20122018 2012 to reduce haulage distances. Combustion of fossil fuels INTEGRATE RENEWABLES Scope 1 (directOPERATIONAL emissions): Combustion EXCELLENCE INTEGRATE RENEWABLES Scope• Optimise 1 (direct ventilation, emissions): Combustiondewatering CombustionMethodology: of fossil We fuels have (contract reportedors) on all of the emission sources required under the Companies Act 2006 (Strategic AND CLEAN TECHNOLOGIES of fuel (mobileAND and ENERGY stationary EFFICIENCY sources). 530,377 375,121 2,042,982 1,385,448 AND CLEAN TECHNOLOGIES of fueland (mobile ore dilution and stationary at our undergroundsources). 530,377ElectricityReport from375,121 and the Directors’ National2,042,982 Reports) Grid Regulations1,385,448 2013. These sources fall within our operational control. We do not have KEY ACTIVITIES: Scope 2 (indirectKEY ACTIVITIES: emissions): Electricity Electricityresponsibility from TEP for any emission sources that are not included in our Consolidated Statement. We have used The WRI/ KEY ACTIVITIES: Scopeoperations. 2 (indirect emissions): Electricity Electricity from FEISA (wind) • Increase the use of renewables purchased •fromIncrease the Mexican the National energy Grid efficiency of WBCSD Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (Revised Edition). • Increase the use of renewables purchased from the Mexican National Grid Electricity from EDC (wind) in our electricity supply mix. (CFE), WindForceour Peñoles processing (FEISA) plants and and set targets Scope 1: All direct GHG emissions. in our electricity supply mix. Scope 2: Indirect GHG emissions from consumption of purchased electricity. • Monitor the development of clean (CFE),PUBLIC WindForce POLICY AND Peñoles PREPAREDNESS (FEISA) and GHG INTENSITY (TONNES OF CO E PER ENERGY INTENSITY (MWHE PER TONNE Thermoelectricfor Peñoles our mines. (TEP). 286,697 329,245 950,547 420,615 2 • technologiesMonitor the such development as ventilation of clean ThermoelectricFOR THE PHYSICAL Peñoles IMPACT (TEP). OF 286,697TONNE OF329,245 MINERAL PROCESSED)950,547 420,615 OF MINERAL PROCESSED) • Optimise truck fleet performance ENERGY – GHG PROFILE – 2018 systemstechnologies and electric such undergroundas ventilation IntensityCLIMATE measurement: CHANGE Emissions and energyIntensity reportedand measurement: above test per diesel tonne Emissionsadditives of and to improve 2018 0.019 2018 0.059 vehicles.systems and electric underground KEY ACTIVITIES: 2017 0.017 2017 0.053 mineralenergy processed. reported above per tonne of 0.016 0.013Energy 0.059 0.034 45.07% 23.18% 5.15% 7.36%0.480.48% 18.77% fuel combustion at our open pit 2016 0.019 2016 0.051 vehicles. • Engage public policymakers and GHG 42.85% 22.06% 10.97% 24.11%0 OPERATIONAL EXCELLENCE mineral processed.operations, and locate waste dumps0.0162015 0.013 0.0590.016 0.034 2015 0.050 Methodology:other We have stakeholders reported on all of through the emission the sources required under the Companies Act 2006 (Strategic AND ENERGY EFFICIENCY to reduce haulage distances. 2014 Combustion of fossil fuels 0.016 2014 0.050 OPERATIONAL EXCELLENCE Report and MexicanDirectors’ Reports) Chapter Regulations of the 2013. World These sources fall within our operational control. We do not have Methodology: We have reported on all of the emission sources required Combustion under the ofCompanies fossil fuels (contractors) Act 2006 (Strategic KEYAND ACTIVITIES: ENERGY EFFICIENCY responsibility •for anyOptimise emission sources ventilation, that are not dewateringincluded in our Consolidated Statement. We have used The WRI/ ReportBusiness and Directors’ Council Reports) for Regulations Sustainable 2013. These sources fall within Electricity our operational from the National control. Grid We do not have • Increase the energy efficiency of WBCSD Greenhouseand Gas ore Protocol: dilution A Corporate at our Accounting underground and ReportingGHG Standard EMISSIONS (Revised Edition). ENERGY USE KEY ACTIVITIES: responsibilityDevelopment for any emission (CESPEDES). sources that are not included in our Consolidated Electricity fromStatement. TEP We have used The WRI/ our processing plants and set targets Scope 1: All direct operations.GHG emissions. • Increase the energy efficiency of ScopeWBCSD 2: Indirect Greenhouse GHG emissions Gas from Protocol: consumption A Corporate of purchased Accounting electricity. and2018 Reporting Electricity Standard from530.38 FEISA (Revised (wind)286.70 Edition). 2018 2,043 951 for our mines. Electricity from EDC (wind) our processing plants and set targets Scope See1: All pagedirect 80 GHG (water emissions. section) and our website 2017 496.80 462.98 2017 1,913 853 • Optimise truck fleet performance ENERGYScope – GHG for2: Indirect a PROFILE more GHG detailed – 2018emissions discussion. from consumption of purchased2016 electricity. 476.42 458.85 2016 1,761 706 PUBLIC POLICY AND PREPAREDNESS GHG INTENSITY (TONNES OF CO E PER ENERGY INTENSITY (MWHE PER TONNE for our mines. 2 and test diesel additives to improve FOR THE PHYSICAL IMPACT OF 2015 TONNE OF422.03 MINERAL375.51 PROCESSED) 2015 OF MINERAL PROCESSED)1,648 673 • Optimise truck fleet performance EnergyENERGY – GHG PROFILE – 201845.07% 23.18% 5.15% 7.36%0.480.48% 18.77% fuel combustion at our open pit • RecogniseCLIMATE CHANGE that the most significant 2014 412.54 412.11 2014 1,586 577 operations,and test diesel and locate additives waste to dumps improve GHG 42.85% 22.06% 10.97%2018 24.11%0 0.019 2018 0.059 physicalKEY ACTIVITIES: impacts of climate change Scope2017 1 Scope 2 0.017 Scope2017 1 Scope 2 0.053 tofuel reduce combustion haulage distances.at our open pit CombustionEnergy of fossil fuels 45.07% 23.18% 5.15% 7.36%0.480.48% 18.77% • Optimise ventilation, dewatering CombustionGHGfor• of ourfossilEngage fuels Company (contract publicors) relate policymakers to water.42.85% and 22.06%2016 10.97% 24.11%0 0.019 2016 0.051 operations, and locate waste dumps 2015 0.016 2015 0.050 and ore dilution at our underground Electricity from theother National stakeholders Grid through the to reduce haulage distances. ElectricityCombustion fromLearn TEP more of fossil about fuels our risk assessment and 2014 0.016 2014 0.050 • operations.Optimise ventilation, dewatering ElectricityCombustion fromgovernance FEISAMexican of (wind) fossil in fuels ourChapter (contract report ors)to of the the CDP World climate ElectricityElectricity fromchange EDCBusiness from (wind) programme. the National Council Grid for Sustainable and ore dilution at our underground Electricity from TEP GHG EMISSIONS ENERGY USE PUBLIC POLICY AND PREPAREDNESS GHG INTENSITYDevelopment (TONNES OF CO (CESPEDES).E PER ENERGY INTENSITY (MWHE PER TONNE operations. Electricity from FEISA (wind) 2 FOR THE PHYSICAL IMPACT OF TONNE OF MINERAL PROCESSED) OF MINERAL PROCESSED)2018 530.38 286.70 2018 2,043 951 Electricity from EDC (wind) 2017 496.80 462.98 2017 1,913 853 CLIMATE CHANGE 2018 See page 80 (water0.019 section) and our2018 website 0.059 KEYPUBLIC ACTIVITIES: POLICY AND PREPAREDNESS 2017 for a more detailed0.017 discussion. 2017 2016 476.420.053 458.85 2016 1,761 706 GHG INTENSITY (TONNES OF CO 2E PER ENERGY INTENSITY (MWHE PER TONNE •FOREngage THE PHYSICAL public policymakers IMPACT OF and 2016 TONNE OF MINERAL PROCESSED)0.019 2016 OF MINERAL2015 PROCESSED)422.030.051 375.51 2015 1,648 673 2015 0.016 2015 2014 412.540.050 412.11 2014 1,586 577 CLIMATEother stakeholders CHANGE through the 2018 • Recognise that the most0.019 significant 2018 0.059 2014 0.016 2014 0.050 KEYMexican ACTIVITIES: Chapter of the World 2017 physical impacts of 0.017climate change 2017 Scope 1 Scope 2 0.053 Scope 1 Scope 2 Business Council for Sustainable 2016 for our Company relate 0.019to water. 2016 0.051 • Engage public policymakers and GHG EMISSIONS ENERGY USE Developmentother stakeholders (CESPEDES). through the 2015 0.016 2015 0.050 2018 530.38 286.70 2018 2,043 951 Mexican Chapter of the World 2014 Learn more about our0.016 risk assessment and 2014 0.050 QuickSee pageread 80 (water section) and ourIntroduction website 2017 496.80governanceRegulatory 462.98in our and report market to the CDP20171 climateInvestor expectations1,913 853 2 Appendix A – questions 3 Appendix B – examples 4 Appendix C – participants 5 Appendix D – regulatory Businessfor a more detailed Council discussion. for Sustainable 2016 476.42changeoverview programme.458.85 2016 and company 1,761views 706 and recommended and process and market initiatives GHG EMISSIONS ENERGY USE of developing practice Development (CESPEDES). 2015 422.03 375.51 2015 1,648 673 disclosures • Recognise that the most significant 2014 2018 412.54 530.38412.11 286.70 2014 2018 1,586 577 2,043 951 physicalSee page impacts 80 (water of section)climate and change our website Scope2017 1 Scope 2 496.80 462.98 Scope 1 2017Scope 2 1,913 853 forfor our a more Company detailed relate discussion. to water. 2016 476.42 458.85 2016 1,761 706 2015 422.03 375.51 2015 1,648 673 • RecogniseLearn more about that our the risk mostassessment significant and 2014 412.54 412.11 2014 1,586 577 governance in our report to the CDP climate physicalchange programme. impacts of climate change Scope 1 Scope 2 Scope 1 Scope 2 for our Company relate to water.

Learn more about our risk assessment and governance in our report to the CDP climate change programme. – Our Investment Bank provides capitalraising and strategic Reducing our direct climate impact advisory services globally to companies offering pro We set quantitative targets and continue to reduce UBS’s ducts that make a positive contribution to climate change Groupwide greenhouse gas (GHG) emissions and increase mitigation and adaptation, including those in the our share in renewable energy in line with our commit solar, wind, hydro, energy efficiency, waste and biofuels, ment to RE100, a global initiative that encourages multinati and transport sectors. onal companies to make a commitment to using 100% – We strive to be the preferred strategic financial partner renewable power by 2020. This will reduce the firm’s GHG relating to Switzerland’s Energy Strategy 2050. In 2018, footprint by 75% by 2020 compared with 2004 levels. our Personal & Corporate business supported eight strategic transactions in support of the strategy. And the Refer to the “Inhouse environmental management“ UBS Clean Energy Infrastructure Switzerland strategy section in the UBS GRI Document 2018 for more offers institutional investors unprecedented access to information a diversified portfolio of Swiss infrastructure facilities Climate-relatedand renewable corporate energy reporting companies. Due to client’s demand, 70 a successor strategy was launched in September 2017.

Climate-related metrics 2018 UBS Group AG For the year ended Our Climate Strategy 2019 31.12.2018 31.12.2017 p4 Protecting our own assets Risks

1 Identified significant climaterelated financial risk on balance sheet None None What is helpful? Carbonrelated assets (USD bn)2 2.7 6.6 Proportion of total net credit exposure (%) 1.2 2.8 UBS Group AG presents its risks and opportunities, with performance of the metrics presented across more than one year. Protecting our clients’ assets and mobilizing private and institutional capital Opportunities / products and services Climaterelated sustainable investments (USD bn)3 87.5 74 Proportion of UBS clients’ total invested assets (%) 2.8 2.3 Total deal value in equity or debt capital market services related to climate 31.6 44.3 change mitigation and adaptation (CCMA) (USD bn) Total deal value of financial advisory services related to CCMA (USD bn) 24.9 5.5 Number of strategic transactions in support of Switzerland’s Energy Strategy 2050 8 4 Number of climaterelated shareholder resolutions voted upon 43 34 Proportion of supported climate-related shareholder resolutions (%)4 88.0 82.0

Reducing our own climate change impact Greenhouse gas emissions

5 GHG footprint (kilotons CO2e) 132 148 Percentage change from baseline 2004 (Target: –75% by 2020) (%) (63.4) (59.0)

Weighted carbon intensity of the Climate Aware equities strategy (in tons CO2e 95.6 117.45 per million of USD revenue)6 Compared to benchmark (FTSE Developed World Index) (%) (55.7) (44.0)

1 Methodologies for climaterelated financial risk are emerging and may change over time. In 2018, a group of 16 banks, including UBS, and UNEP FI have partnered to refine methodologies for climaterelated risks and opportunities. 2 Total net credit exposure across Personal & Corporate Banking and the Investment Bank, includes traded and banking products. Net of allowances, provisions, and hedges. As recommended by the TCFD, carbonrelated assets are defined as assets tied to the energy and utilities sectors (Global Industry Classification Standard). Noncarbonrelated assets, such as renewables, water utilities, and nuclear power excluded. For grid utilities, the national grid mix is applied. 2018 yearonyear drop attributed to planned reductions in Energy and Utilities lending exposure within the Investment Bank. 3 Invested assets of products such as sustainably managed properties and infrastruc ture, and renewable energy. 4 On all proposals that we supported, we voted against the recommendation provided by the issuer. 5 GHG footprint equals gross GHG emissions minus GHG reductions from renewable energy and GHG offsets (gross GHG emissions include: direct GHG emissions by UBS; indirect GHG emissions associated with the generation of imported / purchased electricity (grid average emission factor), heat or steam and other indirect GHG emissions associated with business travel, paper consumption and waste disposal). A breakdown of our GHG emissions (scope 1, 2, 3) is available in the UBS GRI Document 2018. 6 Yearonyear decrease of carbon intensity is mainly driven by higher carbon targets of the investment strategy. Carbon intensity is based on scope 1 and 2 CO emissions of investee companies, which often rely on thirdparty estimates. 2 4 © UBS The March key symbol 2019. and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.

Quick read Introduction Regulatory and market 1 Investor expectations 2 Appendix A – questions 3 Appendix B – examples 4 Appendix C – participants 5 Appendix D – regulatory overview and company views and recommended of developing practice and process and market initiatives disclosures Strategic report Our strategy We do this by • Putting sustainability at the heart of our business To lead the way • Growing our recycling platform • Delivering against our range of long-term sustainability targets in sustainability Our performance In 20181 we delivered: We aim to lead the way in sustainability by balancing the • 6.1 per cent like for like reduction in CO2e per needs of our business, our environment and our people. tonne of production • Our target to ensure 100 per cent of our sites hold chain of custody certification Packaging must help to protect and build brands. Branding and sustainability have become ever closer entwined — no brands • 97 per cent of the papers used in our business are immune to the consumer impact of operating unsustainably. are recycled or chain of custody certified As traditional advertising is in decline, packaging is an • An improved or maintained strong performance increasingly vital chance for consumers to engage with brands, in key sustainability benchmarks making the use of sustainable packaging essential. In 20191 we will: John Nguyen/PA Wire In a changing world, packaging must do more than protect • Continue to deliver against our nine long-term products, keep food and drink fresher for longer and minimise sustainability targets supply chain and product waste. Packaging must do all • Begin delivery of key circular economy Ellen MacArthur Foundation — Global Partner of this, sustainably. programmes in partnership with the Ellen We are proud to report that we have recently signed an MacArthur Foundation agreement with the Ellen MacArthur Foundation (EMF) Putting sustainability at the heart to become a Global Partner. EMF is an organisation at the Climate-related• Further corporate develop reporting our reporting against the 71 Through our circular business model, we put sustainability TCFD2 recommendations forefront of the acceleration towards a circular economy at the heart of our products and services and deliver packaging and our strategic partnership will support innovation solutions and recycling services that meet the evolving across the business and will help us to lead the way in requirements of supply chains, customers and consumers. sustainability. Our partnership will also enable us to DS Smith plc Our sustainability KPIs further embed circular economy thinking into our Our network of packaging strategists, supported by our business, through training, awareness and new ways Annual Report & Accounts 2019 Aim Strategic report innovative Impact and PackRight Centres, are designing of working. p31 packagingOur that notstrategy only protects products and the resources Reduce our CO e per tonne of We do this by invested, but makes logistics more efficient, reduces supply 2 • Putting sustainability at the heart chain environmental impacts, replaces plastics and reduces production by 30% by 2030 of our business Aim Packaging has never been more relevant food waste.To lead the way Definition • Growing our recycling platform What is helpful? Packaging helps to prevent waste: wasted food through Our total CO2e emissions including all direct (Scope 1) and • Delivering against our range of long-term Our primary raw material — fibre — is a renewable biomaterial 100% sites hold chain of custody DS Smith presents metrics relevant spoilage, wasted products due to damage and wasted time and indirect emissions from energy consumption (Scope 2) divided sustainability targets sourced from either recycling streams or from sustainably to the business model, with targets, space in logistics and transport. Packaging protects resources by our production volumes in tonnes. certification managedin sustainability forests. Timber fibre, recyclable both in theory and progress, definitions and performance and makes supply chains more efficient. In a changing and Definition Our performance across more than one year. in practice, is capable of being recycled up to 25 times. increasingly resource-constrained world with ever more Why this is a KPI All sites thatIn trade 20181 or we manufacture delivered: timber-derivative waste-conscious consumers, the right packaging has a key We aim to lead the way in sustainability by balancing the As a manufacturing business, including a network of energy products to hold a relevant chain of custody certification Across our operations we are reducing our environmental • 6.1 per cent like for like reduction in CO2e per role to play. needs of our business, our environment and our people. intensive paper mills, we monitor, measure and manage our (e.g. FSC, PEFC, SFI).tonne of production impact through investment in innovative energy reduction carbon emissions to ensure that we meet relevant legal technologies, switching to cleaner fuel, turning waste streams • Our target to ensure 100 per cent of our sites Packaging facilitates a more circular global economy. requirements and reduce our emissions to limit the effects Why this is a KPI into resources and managing our water impact. Our Recycling hold chain of custody certification Recycled, recyclable corrugated packaging is a shining example Packaging must helpof climate to protect change. and build brands. Branding and Chain of custody schemes are widely recognised as a key division plays a key role in this, managing c. five million tonnes • 97 per cent of the papers used in our business of a circular economic system with an established recycling sustainability have become ever closer entwined — no brands mechanism in ensuring and demonstrating to consumers the of waste materials per annum, some of which are a key 1 are recycled or chain of custody certified infrastructure maintaining value in and use of recycled raw are immune to the2018 consumer Performance impact of operating unsustainably. sustainable sourcing of a wide range of commodities including feedstock for our network of paper mills. The net effect is that materials, again and again. As traditional advertisingOur performance is in decline, in the packaging past year is anis due to a continued pulp and paper.• An improved or maintained strong performance we are involved in the recycling of a considerably higher increasingly vital chanceinvestment for consumers in energy efficiencyto engage improvements.with brands, This has in key sustainability benchmarks Packaging must play a role in tackling systemic sustainability tonnage of material than we manufacture. making the use of beensustainable supported packaging by the ongoingessential. roll out of the ISO 50001 2018/19 Performance In 20191 we will: challenges. From ocean plastics and climate change to energy management system certification across our In the year we achieved this target, with 100 per cent of John Nguyen/PA Wire To further explore how we manage sustainability issues in more biodiversity loss, every business in every industry can and must In a changing world,manufacturing packaging must sites. do more than protect relevant sites• Continuenow holding to deliver a chain against of custody our nine certification. long-term detail please see our Sustainability Report 2019. play a role in finding solutions to global environmental issues. products, keep food and drink fresher for longer and minimise sustainability targets 2030 target: 146 CO e/tonne 2018/19 target: 100% Ellen MacArthur Foundation — Global Partner Innovative new applications for fibre-based packaging can help supply chain and product waste. Packaging must do all 2 • Begin delivery of key circular economy Our approach and performance We are proud to report that we have recently signed an to address the plastics issue. Transport emissions, now the UK’s of this, sustainably. 193 programmes in partnership with the Ellen100 At DS Smith, our approach to sustainability is focused on the agreement with the Ellen MacArthur Foundation (EMF) biggest carbon emitter, can be reduced in e-commerce supply 2018 2018/19 MacArthur Foundation three pillars of our business, our environment and our people. Putting sustainability at the heart to become a Global Partner. EMF is an organisation at the chains using smart packaging solutions. Optimised quality 206 • Further develop our reporting against the95 We have a number of ambitious targets under each pillar Through our circular2017 business model, we put sustainability 2017/18 2 forefront of the acceleration towards a circular economy recycling of corrugated packaging reduces the need for virgin TCFD recommendations to focus our activities in the areas where we can have the at the heart of our products and services and deliver packaging 209 85 and our strategic partnership will support innovation fibre inputs. 2015 2016/17 greatest impact. solutions and recycling services that meet the evolving across the business and will help us to lead the way in (baseline) requirements of supply chains, customers and consumers. sustainability. Our partnership will also enable us to Our sustainability KPIs further embed circular economy thinking into our 1. Environmental sustainability data is reported on a calendar year basis Our network of packaging strategists, supported by our business, through training, awareness and new ways 2. TaskforceAim on Climate-related Financial Disclosures innovative Impact and PackRight Centres, are designing of working. 30 packaging that not only protects products and the resources ReduceAnnual our report CO & accountse per 2019 tonne | dssmith.com of31 invested, but makes logistics more efficient, reduces supply 2 chain environmental impacts, replaces plastics and reduces production by 30% by 2030 Aim Packaging has never been more relevant food waste. Definition

Packaging helps to prevent waste: wasted food through Our total CO2e emissions including all direct (Scope 1) and Our primary raw material — fibre — is a renewable biomaterial 100% sites hold chain of custody spoilage, wasted products due to damage and wasted time and indirect emissions from energy consumption (Scope 2) divided sourced from eitherQuick read recycling streams orIntroduction from sustainably Regulatory and market Investor expectations Appendix A – questions Appendix C – participants Appendix D – regulatory space in logistics and transport. Packaging protects resources 1 by our production2 volumes in tonnes.3 Appendix B – examples 4 certification5 managed forests. Timber fibre, recyclable both in theory and overview and company views and recommended of developing practice and process and market initiatives and makes supply chains more efficient. In a changing and disclosures Definition in practice, is capable of being recycled up to 25 times. increasingly resource-constrained world with ever more Why this is a KPI All sites that trade or manufacture timber-derivative As a manufacturing business, including a network of energy products to hold a relevant chain of custody certification waste-conscious consumers, the right packaging has a key Across our operations we are reducing our environmental role to play. intensive paper mills, we monitor, measure and manage our (e.g. FSC, PEFC, SFI). impact through investment in innovative energy reduction carbon emissions to ensure that we meet relevant legal technologies, switching to cleaner fuel, turning waste streams Packaging facilitates a more circular global economy. requirements and reduce our emissions to limit the effects Why this is a KPI into resources and managing our water impact. Our Recycling Recycled, recyclable corrugated packaging is a shining example of climate change. Chain of custody schemes are widely recognised as a key division plays a key role in this, managing c. five million tonnes of a circular economic system with an established recycling mechanism in ensuring and demonstrating to consumers the of waste materials per annum, some of which are a key 1 infrastructure maintaining value in and use of recycled raw 2018 Performance sustainable sourcing of a wide range of commodities including feedstock for our network of paper mills. The net effect is that materials, again and again. Our performance in the past year is due to a continued pulp and paper. we are involved in the recycling of a considerably higher investment in energy efficiency improvements. This has Packaging must play a role in tackling systemic sustainability tonnage of material than we manufacture. been supported by the ongoing roll out of the ISO 50001 2018/19 Performance challenges. From ocean plastics and climate change to energy management system certification across our In the year we achieved this target, with 100 per cent of To further explore how we manage sustainability issues in more biodiversity loss, every business in every industry can and must manufacturing sites. relevant sites now holding a chain of custody certification. detail please see our Sustainability Report 2019. play a role in finding solutions to global environmental issues. 2030 target: 146 CO2e/tonne 2018/19 target: 100% Innovative new applications for fibre-based packaging can help Our approach and performance to address the plastics issue. Transport emissions, now the UK’s 193 100 At DS Smith, our approach to sustainability is focused on the 2018 2018/19 biggest carbon emitter, can be reduced in e-commerce supply three pillars of our business, our environment and our people. chains using smart packaging solutions. Optimised quality 206 95 We have a number of ambitious targets under each pillar 2017 2017/18 recycling of corrugated packaging reduces the need for virgin to focus our activities in the areas where we can have the 209 85 fibre inputs. greatest impact. 2015 2016/17 (baseline)

1. Environmental sustainability data is reported on a calendar year basis 2. Taskforce on Climate-related Financial Disclosures 30 Annual report & accounts 2019 | dssmith.com 31 National Grid Annual Report and Accounts 2018/19 Strategic Report National Grid Annual Report and Accounts 2018/19 Strategic Report OurOur businessbusiness environmentenvironment TheThe energy energy industry industry is is experiencing experiencing unprecedented unprecedented change,change, shaped by shaped by four four key themes: key themes: affordability, affordability, decarbonisation,decarbonisation, decentralisation decentralisation and digitisation. and digitisation.

Affordability 2018/19 developments Our response Affordability 2018/19 developments Our response As the energy industry As the energy industry UK • We are focused on managing our networks over the transitions to a decarbonised, UK • We are focused on managing our networks over the transitions to a decarbonised, In the UK, affordability of energy continues long term, maintaining highly reliable systems at decentralised, and digital In the UK, affordability of energy continues longcost term, efficiency. maintaining highly reliable systems at decentralised, and digital to be a critical topic as highlighted in the cost efficiency. future,future, new new investment investment will will to be a critical topic as highlighted in the be required to maintain the Government’s response to the ‘Cost of • Our US and UK regulated businesses are pushing be required to maintain the Government’sEnergy’ review. response to the ‘Cost of • Ourfor USgreater and UKaffordability regulated and businesses innovative are ways pushing to reliability customers expect. Energy’ review. forminimise greater affordabilitythe total cost and of energy innovative to consumers. ways to reliability customers expect. minimise the total cost of energy to consumers. NationalNational Grid Grid has has a arole role to to US play in helping customers US • In the UK, we have generated £640 million of play in helping customers The cost of energy remains a priority for • Insavings the UK, for we consumers in have generated the £640 first six million years of of The cost of energy remains a priority for savings for consumers in the first six years of reducereduce their their carbon carbon footprint footprint consumers and regulators who expect the RIIO arrangements. and total energy costs. consumersaffordable, and reliable regulators and cleaner who expect energy. New the RIIO arrangements. and total energy costs. affordable, reliable and cleaner energy. New • In the US, we delivered an estimated $217 million outcome-based performance incentives are • Inin net the US, societal we delivered benefits an in estimatedour first year $217 million of EAM outcome-basedaligning shareholder performance value with incentives customer are value in net societal benefits in our first year of EAM aligning shareholder value with customer value performance incentives in upstate New York. Such and societal benefits. Such incentives are in performancebenefits increase incentives the affordability in upstate New of energy York. andSuch were andplace societal in upstate benefits. New Such York, incentives called Earnings are in benefits increase the affordability of energy and were place in upstate New York, called Earnings achieved through a range of activities. These include 3% Adjustment Mechanisms (EAMs), and Rhode achievedreducing through the electric a range system of activities. peak to Thesemitigate include supply 3% AdjustmentIsland, called Mechanisms Performance (EAMs), Incentive and Rhode reducing the electric system peak to mitigate supply UK transmission network costs per costs, enabling Distributed Energy Resource adoption UK transmission network costs per Island, called Performance Incentive costs, enabling Distributed Energy Resource adoption average household dual fuel bill – Mechanisms (PIMs), and are proposed in and increased adoption of energy efficiency. average household dual fuel bill – MechanismsMassachusetts (PIMs), and and downstate are proposed New York. in and increased adoption of energy efficiency. representation of the total bill Massachusetts and downstate New York. representation of the total bill • We are helping customers to lower their ‘total • Weenergy are helping wallet’ customersby enabling to electric lower their vehicle ‘total energyinfrastructure wallet’ by and enabling encouraging electric adoption vehicle of electric infrastructurevehicles, as welland encouragingas enabling customers adoption of to electric switch vehicles,from oil asheating well as to enablingheat pumps, customers helping to customers switch m from oil heating to heat pumps, helping customers £107£107m realise the benefits of lower costs. allocated to address UK fuel poverty realise the benefits of lower costs. allocated to address UK fuel poverty • Our £107 million voluntary investment in Affordable since 2017 • Our £107 million voluntary investment in Affordable Climate-relatedsince 2017 corporate reporting Warmth Solutions across 2017-2019, supports Warmthaddressing Solutions fuel poverty across in2017-2019, the UK. supports 72 addressing fuel poverty in the UK.

Decarbonisation 2018/19 developments Our response National Grid plc Decarbonisation 2018/19 developments Our response ClimateClimate events events during during Annual Report and 2018 were widespread and UK • Reducing greenhouse gas emissions forms 2018 were widespread and UK • Reducingpart of the greenhouse Company’s gas KPIs emissions (see page forms 18). some, such as the wildfires During 2018, European carbon prices rose part of the Company’s KPIs (see page 18). Accounts 2018/19 some, such as the wildfires During 2018, European carbon prices rose We have also committed to meeting Task in California, impacted energy above €20/tonne; three times the level seen in We have also committed to meeting Task p12 in California, impacted energy above2017. €20/tonne; This increase three was times likely the due level to fossilseen fuelsin Force on Climate-related Financial Disclosure networks significantly. 2017. This increase was likely due to fossil fuels Forcerecommendations on Climate-related in full (see Financial pages Disclosure 210 – 211). networks significantly. burnt during abnormal weather conditions, recommendations in full (see pages 210 – 211). UnderstandingUnderstanding the the social, social, burntas well during as the abnormal reduction weather in carbon conditions, permits • ‘Our Contribution’ environmental strategy focuses environmental and economic as wellfrom 2019. as the Almost reduction a third in carbon of electricity permits was • ‘Ouron theContribution’ areas where environmental we can make strategy a difference. focuses Yo u environmental and economic from 2019. Almost a third of electricity was on the areas where we can make a difference. You impactimpact to to business business generated by renewables in 2018 Q3 can read more about our approach and work on What is helpful? and measuring its generated(source: Gov.uk); by renewables however, in 2018gas remains Q3 canpage read 41. more about our approach and work on and measuring its (source: Gov.uk);the primary fuel however,source for gas generation remains page 41. National Grid is presenting value is likelyvalue is likely to to become become the primary fuel source for generation • In November 2018, NGV confirmed £850 million more important as a result and heating (source: Gov.uk). • Ino Novemberf investment 2018, in the NGV Viking Link confirmed interconnecto £850 millionr information across more important as a result and heating (source: Gov.uk). of investment in the Viking Link interconnector of these events. with Denmark. time, including recent of these events. US with Denmark. US • In both the UK and US, we are supporting the developments and future State regulators continue to support renewable • In both the UK and US, we are supporting the State regulators continue to support renewable adoption of electric vehicles through charge point plans. Carbon intensity of British electricity, energy. For example, a new Massachusetts adoptioninfrastructure, of electric to support vehicles decarbonising through charge point transport Carbon intensity of British electricity, energy.energy For bill example,approved a by new the Massachusetts Senate in June infrastructure, to support decarbonising transport 2013-2018 (gCO2/kWh) energy bill approved by the Senate in June and improving air quality. 2013-2018 (gCO2/kWh) 2018 doubles the state’s offshore wind and improving air quality. 2018ambition doubles to 3.2 the state’s GW by 2035, offshore up windfrom 1.6 GW • In March 2019, NGV signed an agreement to acquire 529 ambition to 3.2 GW by 2035, up from 1.6 GW • In March 2019, NGV signed an agreement to acquire 529 by 2027. In New York, Governor Cuomo Geronimo Energy, a leading developer of wind and by 2027. In New York, Governor Cuomo Geronimosolar generation Energy, assetsa leading based developer in Minneapolis, of wind and announced a commitment to 100% carbon- solar generation assets based in Minneapolis, announcedfree electricity a commitment by 2040, doubling to 100% a carbon- distributed Minnesota. This provides National Grid with a free electricity by 2040, doubling a distributed Minnesota.solid foundation This provides on which National to develop Grid andwith gro a w 0 solar goal and more than tripling the state’s solid foundation on which to develop and grow 0 solaroffshore goal andwind more target. than tripling the state’s a large-scale renewable business in the US. 2 28 offshore wind target. a large-scale renewable business in the US. 2 28 • Massachusetts, Rhode Island, and Connecticut • Massachusetts,recently announced Rhode winners Island, ofand their Connecticut offshore win d recentlytenders announced totalling 1.4 winners GW, with of theirØrsted, offshore supporte windd tendersby National totalling Grid, 1.4 winning GW, with in Rhode IslandØrsted, supported and by NationalConnecticut. Grid, Pricing winning on inthe Massachusetts Rhode Island and contrac t Connecticut. Pricing on the Massachusetts contract 2013 2014 2015 2016 2017 2018 demonstrates the potential for US costs to reflect 2013 2014 2015 2016 2017 2018 demonstratesthe downward the potential trend in technology for US costs costs, to reflect the downward trend in technology costs, Source: nationalgridESO spurred on by the European market. Source: nationalgridESO spurred on by the European market. • In June 2018, we published our Northeast US 80x50 • InP Juneathway: 2018, an weintegrated published blueprint our Northeast for New USYork 80x50 and Pathway:New England an integrated to reduce blueprint greenhouse for New gas York emission and s Newdeeply England below to 1990 reduce levels, greenhouse while supporting gas emissions deeplyeconomic below growth 1990 levels,and maintaining while supporting affordability economicand customer growth choice. and maintaining affordability and customer choice. • Our recently launched energy efficiency and solar • Ourma recentlyrketplaces launched allow our energy customers efficiency to shop and solaronline marketplacesand receive instantallow our rebates customers for energy-efficient to shop online andproducts receive such instant as rebatesLED light for bulbs energy-efficient and smart productsthermostats, such receiveas LED freelight quotesbulbs and for solarsmart thermostats,and compare receive financing free options.quotes for solar and compare financing options.

Quick12 read Introduction Regulatory and market 1 Investor expectations 2 Appendix A – questions 3 Appendix B – examples 4 Appendix C – participants 5 Appendix D – regulatory 12 overview and company views and recommended of developing practice and process and market initiatives disclosures TAEI REPORT STRATEGIC

OUR KEY PERFORMANCE INDICATORS CONTINUED GROUP Q&A

Greenhouse gas emissions We report on greenhouse gas (GHG) emissions in accordance with the GHG Protocol Corporate Accounting and Reporting Standard, and the UK government’s Environmental Reporting Guidance methodologies together with the emissions conversion factors from the Answering the topical strategic questions Department for Business, Energy & Industrial Strategy (BEIS) conversion factors for Company Reporting 2018. In line with this guidance, we have reported the emissions sources* which are required. These sources fall within the businesses included in our consolidated financial statements. Go-Ahead’s Chairman, Group Chief Executive and Group Chief Financial Officer answer the

Emissions are expressed in terms of equivalent carbon dioxide (CO2e). Our relative performance metric has always been kilogrammes topical questions that we get asked by our stakeholders on strategic matters. of CO2e emissions per passenger journey but due to increasing difficulty in obtaining passenger journey data for several of our operating

companies, we are moving to a new relative performance metric of kilogrammes of CO2e per vehicle mile operated. This new metric ensures there is a much closer link between our performance and the measures we are taking to improve our energy efficiency, such as purchasing low emission buses and leasing more efficient rolling stock and rolling out LEDs. To maintain transparency, we will What are the factors driving the challenging What is your view of the franchising model

report against both relative performance metrics this year before moving to reporting only on the new performance metric from next Q conditions in the bus market, and how are Q being extended to bus markets outside London, GOVERNANCE year onwards with a target to achieve 20% reduction on C02e per vehicle mile by 2021 from our 2016/17 baseline. you adapting your business to meet and how could that impact your business? We define our organisational reporting boundary by applying the financial control approach with a materiality threshold set at 5%. those challenges? We believe that working in partnership with local authorities is key to giving communities a reliable Overall, in 2017/18 CO e emissions have reduced by 13% in absolute terms and, against both relative metrics, our performance There are both cyclical and structural factors at play. 2 and successful bus service and growing passenger has continued to improve. The absolute reduction in CO e emissions and the improved relative performance is partly due to the loss Economic uncertainty in the UK is causing reduced 2 numbers. The Bus Services Act offers certain local of the London Midlands franchise in December 2017, but it is also due to continuing improvements in energy efficiency alongside volume growth. This should improve as uncertainty clears. Structurally, there are also changes in travel authorities the opportunity to franchise and we are on-going investment in low carbon, fuel efficient vehicles and rolling stock, as well as the lower CO2e conversion factor for electricity. Climate-related corporate reporting patterns with more people73 working from home, increased waiting to see what happens in Manchester. The current * Emissions from air conditioning equipment in our premises and vehicles are not included in this analysis due to the difficulty in obtaining this data. These levels of internet shopping and more home based leisure cuts to London’s services show that franchised services emissions account for less than 0.5% of our total GHG emissions and are therefore not considered material. activity. We are confident that buses have an important are not immune from reducing passenger numbers 2017/18 2016/17 2015/16 2014/15 role to play in mobility especially where there is population as a consequence of congestion and the wider socio- Total passenger journeys (m) 1,244.88 1,334.09 1,297.23 1,239.89 Go-Ahead Group plc growth and buses are part of the solution to the issues economic trends. Franchising alone will not reduce Total bus & rail mileage (m) 713.9 684.6 675 617 Annual Report and Accounts 2018of congestion and air quality. In this environment, we congestion, improve air quality or create local economic growth. Our operators already have multi-operator p32 are maintaining our focus on customer service, using CONSUMPTION TCO2e CONSUMPTION TCO2e CONSUMPTION TCO2e CONSUMPTION TCO2e technology and innovation to make bus travel more tickets, joint bus and rail tickets, simple fares, real time Scope 1 attractive and easier to use. Our focus on cost and information, apps, contactless payment, WiFi and next Gas (buses) kwhs (m) 6.1 1,118 3.7 685 6 1,162 6.9 1,275 efficiency also continues. Recognising the long term stop announcements. Further benefits can all be delivered nature of these trends, we are developing for the future through partnership thinking.

Gas premises (bus) (m) 22.1 4,062 19.1 3, 518 17 3,141 18.8 3,472 STATEMENTS FINANCIAL What is helpful? of transport with a number of initiatives being trialled to Gas premises (rail) (m) 31.3 5,759 34.3 6,316 34 6,243 34.9 6,437 Go-Ahead presents 4 years of GHG data,provide plus discloses attractive the customer propositions in a changing Gas (premises) total kwhs (m) 53.4 53.4 51 53.7 level of assurance over the data. world, which have the potential to grow in the future. Bus diesel1 (10% bio-diesel blend) ltrs (m) 137.4 360,875 138.9 361,064 130 340,218 127.6 329,788 Rail diesel ltrs (m) 11.7 34,750 18.5 54,567 19 55,081 18.4 53,513 Total 406,564 426,150 405,845 394,485 Scope 2 Traction electricity kwhs (m)2 1389.3 393,266 1,371.4 482,135 1,369 564,076 1,283.5 593,213 Elec premises (bus) (m) 18.4 5,382 17.7 6,232 15 6,034 14.7 6,806 Elec premises (Rail) (m) 83.5 23,634 90.6 31,852 90 37,183 85.4 39,460 Elec premises (Group) (m) 0.2 47 0.1 34 0 0.0 Site electricity kwhs (m) 102.0 108.3 105 100.1 Elec bus3 1.7 489 0.8 289 69,570 29 0 0 Total 422,818 520,542 607,322 639,479 Scope 3

Electricity – Transmission INFORMATION SHAREHOLDER and distribution (Total) 36,027 48,669 54,932 52,798 Out of scopes (Biogenic content of bio-diesel) 7,858 9,373 7,894 11,040 Total 873,268 1,004,735 1,075,993 1,097,802

All Scopes kgsCO2e PPJ 0.70 0.75 0.82 0.88

All Scopes kgsCO2e/vehicle mile 1.22 1.47 1.59 1.78

1. Traction electricity consumption data relates to the period from 1 April 2017 to 31 March 2018. This provides the most accurate figure for consumption. 2. Electric bus electricity consumption includes an estimate for unbilled consumption during meter failure. 3. Local Singapore CO2e conversion factor used for electricity consumption UK CO2e conversion factor used for diesel consumption.

Energy consumption and CO2e figures have been verified by Bureau Veritas. Patrick Butcher David Brown Andrew Allner Group Chief Group Chief Executive Chairman Financial Officer

32 The Go-Ahead Group plc Annual Report and Accounts 2018 www.go-ahead.com 33 Quick read Introduction Regulatory and market 1 Investor expectations 2 Appendix A – questions 3 Appendix B – examples 4 Appendix C – participants 5 Appendix D – regulatory overview and company views and recommended of developing practice and process and market initiatives disclosures 16 Overview Updates on our group priorities

PROTECTING OUR To mitigate this, we implement a range How we report our of measures including conducting risk GHG emissions assessments, devising procurement ENVIRONMENT strategies to spread risk, analysing water We welcome the recommendations of the CONTINUED risk at country level, investing in water Task Force on Climate-related Financial efficiency programmes and investing in Disclosure (TCFD) for corporate disclosure programmes to help farmers respond on climate risk and will continue to monitor to climate change such as Twinings’ developments so that our reporting is clear support of the Ethical Tea Partnership. and consistent. As well as managing climate change risks, In addition, this year we have altered we also recognise the opportunities and the way we report our GHG emissions capitalise on these where possible. These following the latest internationally could be through resource efficiencies, recognised reporting standards. switching energy sources, introducing new or enhanced products or adapting Our GHG emissions to consumer changes. An example of In line with best practice in corporate this is the development and expansion reporting, this year we are reporting Overview Updates on our group priorities 17 of low-emission goods and services. our GHG emissions following the latest The UK has set a target to get 10% of Greenhouse Gas (GHG) Protocol Corporate A number of our transport fuel from renewable sources Accounting and Reporting Standard. by 2020 and the increasing demand However, we have adopted only the for bioethanol could present market location-based approach for reporting businesses have set opportunities for our sugar businesses. our scope 2 emissions. We previously Scope 3 emissions occur as a result of Our Sugar division emitted 2.8 million reported our GHG emissions using a indirect activities throughout our value tonnes of scope 1, 2 and 3 CO e this year, emselves goals to How we measure our 2 format which represented the sources chain. For Associated British Foods, we contributing 56% to the group’s total approach to climate change of emissions aligned with the nature of report the emissions from third party in-scope emissions. Our Sugar division our operations. REDUCE GHGs As disclosed in this report, we measure transport within scope 3. contributes the majority of the group's out a number of consistent metrics each We now report our emissions into the of scope emissions at just over 99% of the Overview WeUpdates also onreport our groupthe emissions priorities classified17 as year to monitor our performance on GHG three scopes and out of scope which total. These out of scope emissions are ‘out of scope’ which are CO emissions emissions and water and energy use. enables us to analyse the emissions over 2 generated from the use of bagasse and resulting from the use of renewable fuels. A number of our businesses have which we have direct control and those other renewable fuels. These emissions As these are considered to be net zero, initiatives in place to manage their impacts generated in our wider value chain. Our are often considered to be carbon neutral. they are reported separately. and have set themselves goals to reduce scope 1 and 2 emissions occur as a result of activities we directly control on our sites. Overall, our in-scope GHG emissions this GHGs in line with the Paris Agreement Scope 3 emissions occur as a result of Our Sugar division emitted 2.8 million Previously, we reported our total emissions Climate-related corporate reporting year are 4.97 million tonnes of CO2e which on climate change which aims to limit indirectScope 1 activities emissions throughout are from energyour value we tonnes of scope 1, 2 and 3 CO e this year, from the use of renewable fuels as a 74 2 is 2% less than the 5.06 million tonnes global temperature rises to no more than chain.generate, For ownedAssociated transport, British agriculture, Foods, we contributing 56% to the group’s total separate amount which we would net off of scopes 1, 2 and 3 generated last year. 2 degrees Celsius, and ideally 1.5 degrees, reporton-site the waste emissions water treatment from third and party air in-scope emissions. Our Sugar division the gross amount. Using the GHG Protocol This means that overall, we reduced the 16 Overview Updates on our group priorities by the end of the century. For example: transportconditioning. within Also scope included 3. are the contributes the majority of the group's out guidelines this year, the methane and amount of emissions from our direct and in line wi e emissions from our production processes of scope emissions at just over 99% of the Associatednitrous oxide from theBritish burning of Foods plc – AB Sugar is committed to reducing its We also report the emissions classified as indirect activities, particularly from such as bread baking, fermentation total. These out of scope emissions are renewable fuels is included in our scope 1 end-to-end supply chain CO2 footprints ‘out of scope’ which are CO emissions to make yeast and ethanol production.2 generated from the use of bagasse and Corporate Responsibility Update 2018purchased electricity, steam and heat. Paris Agreement by 30% by 2030; resulting from the use of renewable fuels. emissions while the carbon dioxide is Scope 1 emissions account for 65% other renewable fuels. These emissions reported as out of scope. This is because Our out of scope emissions remained – Illovo Sugar is committed to reducing As these are considered to be net zero, p16, 17 of our total emissions. are often considered to be carbon neutral. the carbon dioxide is removed from the consistent at 3.7 million tonnes of CO climate change GHG emissions by 10.7% by 2020 they are reported separately. 2 To mitigate this, we implement a range Scope 2 (location based method) Overall, our in-scope GHG emissions this atmosphere, or sequestered, when it is comparing 2018 with last year. These are How(2010 baseline); we report our Previously, we reported our total emissions Overview Updates on our group priorities 17 PROTECTING OUR of measures including conducting risk emissions, which account for 19% of year are 4.97 million tonnes of CO e which absorbed by the plants as part of the the carbon neutral emissions from the GHG emissions from the use of renewable fuels as a 2 assessments, devising procurement – AB Agri has a target to reduce its our total emissions, are from purchased is 2% less than the 5.06 million tonnes biological carbon cycle. If we total our burning of renewable fuels to create ENVIRONMENT separate amount which we would net off What is helpful? strategies to spread risk, analysing water We welcomeoperational the footprint, recommendations including GHG of the electricity, heat and steam which we use in of scopes 1, 2 and 3 generated last year. in-scope and out of scope emissions, energy used by our sites, rather than the gross amount. Using the GHG Protocol risk at country level, investing in water Taskemissions, Force on Climate-related by 20% between Financial 2014 our factories, offices, stores, warehouses This means that overall, we reduced the CONTINUED guidelines this year, the methane and Inemissions this extract, from ABF renewable explains fuels the change in theusing fossil way they fuels. calculate their reported efficiency programmes and investing in Disclosureand 2024; (TCFD) and for corporate disclosure and distribution centres. amount of emissions from our direct and nitrous oxide from the burning of GHGaccount for emissions, 43% withof all ourthe greenhouseinclusion of information around which protocol is used, programmes to help farmers respond on climate risk and will continue to monitor indirect activities, particularly from gas emissions. % – George Weston Foods is preparing for renewableScope 3 emissions fuels is included occur as in a ourresult scope of 1 Our Sugar division emitted 2.8 million changes from previous year, and scope and boundary. 2 to climate change such as Twinings’ developments so that our reporting is clear purchased electricity, steam and heat. shifts in the regulatory and physical emissionsindirect activities while the throughout carbon dioxide our value is tonnes of scope 1, 2 and 3 CO e this year, support of the Ethical Tea Partnership. and consistent. 2 environment through a range of activities reportedchain. For as Associated out of scope. British This Foods, is because we Ourcontributing out of scope 56% emissions to the group’s remained total REDUCTION in such as reducing its use of synthetic As well as managing climate change risks, In addition, this year we have altered thereport carbon the emissions dioxide is removedfrom third from party the consistentin-scope emissions. at 3.7 million Our tonnes Sugar divisionof CO2 Our greenhouse gas emissions we also recognise the opportunities and the wayGHG we refrigerants report our and GHG integrating emissions atmosphere,transport within or sequestered, scope 3. when it is comparingcontributes 2018 the majority with last of year. the group'sThese are out capitalise on these where possible. These followingrenewable the latest energy internationally into its energy mix. absorbed by the plants as part of the theof scope carbon emissions neutral emissions at just over from 99% the of the 2018 emissions 2017 emissions greenhouse We also report the emissions classified as (000 tCO e) (000 tCO e) could be through resource efficiencies, recognised reporting standards. biological carbon cycle. If we total our burningtotal. These of renewable out of scope fuels emissions to create are 2 2 ‘out of scope’ which are CO emissions switching energy sources, introducing in-scope and out of scope emissions,2 energy usedgenerated from by ourthe sites,use of rather bagasse than and Scope 1 – combustion of fuel and operation of facilities 3,159 3,152 resulting from the use of renewable fuels. new or enhanced products or adapting Our GHG emissions emissions from renewable fuels using fossilother renewable fuels. fuels. These emissions gas emissions As these are considered to be net zero, Scope 1 – generation and use of renewables 69 65 to consumer changes. An example of account for 43% of all our greenhouse are often considered to be carbon neutral. In line with best practice in corporate they are reported separately. Scope 1 Total 3,228 3,217 this is the development and expansion gas emissions. % reporting, this year we are reporting Overall, our in-scope GHG emissions this 2 (Scopes 1, 2 and 3) of low-emission goods and services. Previously, we reported our total emissions Scope 2 – emissions from purchased electricity, heat our GHG emissions following the latest year are 4.97 million tonnes of CO e which The UK has set a target to get 10% of from the use of renewable fuels as a 2 or steam (location method) 925 1,026 Greenhouse Gas (GHG) Protocol Corporate is 2% less than the 5.06 million tonnes REDUCTION in transportAssociated fuel British from Foods renewable plc Corporate sources Responsibility Update 2018 Ourseparate greenhouse amount which gas emissions we would net off A number of our Accounting and Reporting Standard. of scopes 1, 2 and 3 generated last year. Scope 3 – indirect emissions from use of third party by 2020 and the increasing demand the gross amount. Using the GHG Protocol However, we have adopted only the This means that overall, we reduced the transport 813 814 for bioethanol could present market location-based approach for reporting guidelines this year, the methane and 2018 emissions 2017 emissions greenhouse amount of emissions(000 tCO frome) our direct(000 tCOand e) businesses have set opportunities for our sugar businesses. nitrous oxide from the burning of 2 2 our scope 2 emissions. We previously indirect activities, particularly from Scoperenewable 1 – combustion fuels is included of fuel in and our operationscope 1 of facilities 3,159 3,152 Total emissions How we measure our reported our GHG emissions using a purchased electricity, steam and heat. emselves goals to format which represented the sources Scopeemissions 1 – whilegeneration the carbon and use dioxide of renewables is 69 65 (Scopesgas 1, 2emissions & 3) 4,966 5,057 approach to climate change of emissions aligned with the nature of Scopereported 1 Totalas out of scope. This is because Our out of scope emissions3,228 remained3,217 Out of scope emissions 3,711 3,652 the carbon dioxide is removed from the consistent at 3.7 million tonnes of CO (Scopes 1, 2 and 3) As disclosed in this report, we measure our operations. 2 REDUCE GHGs Scopeatmosphere, 2 – emissions or sequestered, from purchased when it iselectricity, comparing heat 2018 with last year. These are a number of consistent metrics each 266 tonnes per 276 tonnes per We now report our emissions into the orabsorbed steam (location by the plants method) as part of the the carbon neutral emissions925 from the1,026 year to monitor our performance on GHG Overview Updates on our group priorities 17 three scopes and out of scope which Scopebiological 3 – carbon indirect cycle. emissions If we totalfrom our use of third burningparty of renewable fuels to create Emission intensity (Scope 1 and 2) £1m of revenue £1m of revenue emissions and water and energy use. enables us to analyse the emissions over transportin-scope and out of scope emissions, energy used by our sites,813 rather than 814 which we have direct control and those Emissions are calculated in alignment with the WRI/WBCSD GHG Protocol Corporate Accounting and Reporting A number of our businesses have emissions from renewable fuels using fossil fuels. Standard Revised and have been calculated using carbon conversion factors published by BEIS in August 2018, other initiatives in place to manage their impacts generated in our wider value chain. Our account for 43% of all our greenhouse internationally recognised sources and bespoke factors based on laboratory calculations at selected locations. This Total emissions includes all activities where we have operational control. Location based renewable energy has been calculated in and have set themselves goals to reduce scope 1 and 2 emissions occur as a result gas emissions. % (Scopes 1, 2 & 3) 4,966 5,057 accordance with2 the March 2015 WRI/WBCSD GHG Scope 2 Guidance on procured renewable energy. ABF are GHGs in line with the Paris Agreement of activities we directly control on our sites. Scope 3 emissions occur as a result of OurOut Sugarof scope division emissions emitted 2.8 million 3,711 3,652 unable to report a market-based emission this year but will look to do so in the future. For 2017 and 2018, Scope 3 on climate change which aims to limit emissions are our third-party transport emissions only. See ‘Our CR Reporting Guidance 2018’ for more detail. Scopeindirect 1 emissions activities throughoutare from energy our value we tonnes of scope 1, 2 and 3 CO e this year, REDUCTION in global temperature rises to no more than Our greenhouse gas emissions2 generate,chain. For owned Associated transport, British agriculture, Foods, we contributing 56% to the group’s total Our greenhouse gas emissions by division 2 degrees Celsius, and ideally 1.5 degrees, 266 tonnes per 276 tonnes per on-sitereport waste the emissions water treatment from third and party air in-scope emissions. Our Sugar division by the end of the century. For example: Emission intensity (Scope 1 and 2) £1m2018 of emissions revenue £1m2017 of emissions revenue conditioning. Also included are the greenhouse 2018 emissions (000 tCO e) 2017 emissions (000 tCO e) transport within scope 3. contributes the majority of the group's out (000 tCO e) (000 tCO e) 2 2 in line wi e 2 2 – AB Sugar is committed to reducing its emissions from our production processes ofEmissions scope are emissions calculated in at alignment just over with 99% the WRI/WBCSD of the GHG Protocol Corporate Accounting and Reporting We also report the emissions classified as Scope 1 – combustion of fuel and operation of facilities 3,159 3,152 Sugar Other Sugar Other end-to-end supply chain CO footprints such as bread baking, fermentation total.Standard These Revised out and of have scope been emissionscalculated using are carbon conversion factors published by BEIS in August 2018, other 2 internationally recognised sources and bespoke factors based on laboratory calculations at selected locations. This Totalgas emissions emissions to make‘out of yeastscope’ and which ethanol are COproduction.2 emissions Scope 1 – generation and use of renewables 69 65 Paris Agreement by 30% by 2030; generatedincludes all activities from wherethe use we ofhave bagasse operational and control. Location based renewable energy has been calculated in resulting from the use of renewable fuels. (Scopes 1, 2 & 3) 2,785 2,181 2,869 2,188 Scope 1 emissions account for 65% otheraccordanceScope renewable 1 withTotal the March fuels. 2015 These WRI/WBCSD emissions GHG Scope 2 Guidance on procured renewable3,228 energy. ABF are3,217 – Illovo Sugar is committed to reducing As these are considered to be net zero, unable to report a market-based emission this year but will look to do so in the future. For 2017 and 2018, Scope 3 (Scopes 1, 2 and 3) of our total emissions. are often considered to be carbon neutral. Out of scope emissions 3,711 0.24 3,651 0.29 climate change GHG emissions by 10.7% by 2020 they are reported separately. emissionsScope 2 are – emissionsour third-party from transport purchased emissions only.electricity, See ‘Our heatCR Reporting Guidance 2018’ for more detail. (2010 baseline); Scope 2 (location based method) Overall,or steam our (location in-scope method) GHG emissions this 925 1,026 Previously, we reported our total emissions Our greenhouse gas emissions by division Associated British Foods plc Corporate Responsibility Update 2018 emissions, which account for 19% of yearScope are 4.97 million 3 – indirect emissions tonnes of from CO euse which of third party – AB Agri has a target to reduce its our totalfrom the emissions, use of renewable are from fuelspurchased as a 2 is 2%transport less than the 5.06 million 2tonnes018 emissions (000 tCO e) 2017 emissions813 (000 tCO 814e) operational footprint, including GHG separate amount which we would net off 2 2 electricity, heat and steam which we use in of scopes 1, 2 and 3 generated last year. emissions, by 20% between 2014 Quickthe gross read amount. Using the GHGIntroduction Protocol Regulatory and marketSugar InvestorOther expectations Sugar AppendixOther A – questions Appendix C – participants Appendix D – regulatory our factories, offices, stores, warehouses This means that overall, we reduced the 1 2 3 Appendix B – examples 4 5 and 2024; and guidelines this year, the methane and Total emissionsoverview and company views and recommended and process and market initiatives and distribution centres. amount of emissions from our direct and of developing practice nitrous oxide from the burning of (Scopes 1, 2 & 3) 2,785 2,181 4,9662,869 disclosures5,0572,188 – George Weston Foods is preparing for indirect activities, particularly from renewable fuels is included in our scope 1 Out of scope emissions 3,711 3,652 shifts in the regulatory and physical purchasedOut of scope electricity, emissions steam and heat.3,711 0.24 3,651 0.29 emissions while the carbon dioxide is environment through a range of activities reported as out of scope. This is because Our out of scope emissions remained such as reducing its use of synthetic 266 tonnes per 276 tonnesAssociated per British Foods plc Corporate Responsibility Update 2018 the carbon dioxide is removed from the consistent at 3.7 million tonnes of CO GHG refrigerants and integrating Emission intensity (Scope 1 and 2)2 £1m of revenue £1m of revenue atmosphere, or sequestered, when it is comparing 2018 with last year. These are renewable energy into its energy mix. absorbed by the plants as part of the theEmissions carbon are calculatedneutral emissions in alignment withfrom the the WRI/WBCSD GHG Protocol Corporate Accounting and Reporting Standard Revised and have been calculated using carbon conversion factors published by BEIS in August 2018, other biological carbon cycle. If we total our burninginternationally of renewable recognised sources fuels and to createbespoke factors based on laboratory calculations at selected locations. This in-scope and out of scope emissions, energy usedincludes all activities by ourwhere sites, we have rather operational than control. Location based renewable energy has been calculated in emissions from renewable fuels using fossilaccordance with fuels. the March 2015 WRI/WBCSD GHG Scope 2 Guidance on procured renewable energy. ABF are unable to report a market-based emission this year but will look to do so in the future. For 2017 and 2018, Scope 3 account for 43% of all our greenhouse emissions are our third-party transport emissions only. See ‘Our CR Reporting Guidance 2018’ for more detail. gas emissions. 2% Our greenhouse gas emissions by division

2018 emissions (000 tCOREDUCTIONe) 2017 emissions (000in tCO e) Associated British Foods plc Corporate Responsibility Update 2018 Our greenhouse gas emissions 2 2 Sugar Other Sugar Other Total emissions2018 emissions 2017 emissions greenhouse (000 tCO e) (000 tCO e) (Scopes 1, 2 & 3) 2 2,7852 2,181 2,869 2,188 Scope 1 – combustion of fuel and operation of facilitiesOut of scope emissions3,159 3,1523,711 0.24 3,651 0.29 Scope 1 – generation and use of renewables 69 65 gas emissions Scope 1 Total 3,228 3,217 (Scopes 1, 2 andAssociated 3) British Foods plc Corporate Responsibility Update 2018 Scope 2 – emissions from purchased electricity, heat or steam (location method) 925 1,026 Scope 3 – indirect emissions from use of third party transport 813 814

Total emissions (Scopes 1, 2 & 3) 4,966 5,057 Out of scope emissions 3,711 3,652

266 tonnes per 276 tonnes per Emission intensity (Scope 1 and 2) £1m of revenue £1m of revenue

Emissions are calculated in alignment with the WRI/WBCSD GHG Protocol Corporate Accounting and Reporting Standard Revised and have been calculated using carbon conversion factors published by BEIS in August 2018, other internationally recognised sources and bespoke factors based on laboratory calculations at selected locations. This includes all activities where we have operational control. Location based renewable energy has been calculated in accordance with the March 2015 WRI/WBCSD GHG Scope 2 Guidance on procured renewable energy. ABF are unable to report a market-based emission this year but will look to do so in the future. For 2017 and 2018, Scope 3 emissions are our third-party transport emissions only. See ‘Our CR Reporting Guidance 2018’ for more detail. Our greenhouse gas emissions by division

2018 emissions (000 tCO2e) 2017 emissions (000 tCO2e) Sugar Other Sugar Other Total emissions (Scopes 1, 2 & 3) 2,785 2,181 2,869 2,188 Out of scope emissions 3,711 0.24 3,651 0.29

Associated British Foods plc Corporate Responsibility Update 2018 To assess these risks we have worked with which means storms and flooding could Report Strategic Willis Towers Watson, conducting research continue to affect our assets. We also found Our new Sustainability Charter using stochastic modelling to help determine that an increase in average temperature is and Brief the likelihood of potential weather patterns likely to affect our operational costs of cooling and natural hazards. The modelling looked and heating, but not in a financially material at how future weather patterns are likely to way. Our modelling shows the requirements This year we introduced two new impact our assets over two time horizons: for more cooling, but less heating, will broadly documents to help us progress our up to 2030 and beyond 2030. cancel each other out when it comes to costs. sustainability programme.

The likelihood of future weather events was The effects beyond 2030 are likely to be Our new Sustainability Charter clearly modelled based on the four Representative different. The risk of inland flood, coastal flood outlines our expectations and ambitions to Concentration Pathways (RCPs) which are and windstorm will increase. The impact of all partners. We use it to support proactive used by the Intergovernmental Panel on Climate these hazards will become more relevant conversations and it includes a pledge we Change (IPCC) to illustrate future concentrations towards 2050, resulting in an increased negative require partners to take. So, when we’re of greenhouse gases in the atmosphere. We impact on the current Landsec portfolio if our agreeing contracts or planning a new focused on a best-case scenario, where global control measures remain the same. project together, this charter plays an Climate-related corporate reporting 75 average temperature increases by two degrees, important part in the conversation. and a worst-case scenario, with a temperature Our response increase of four degrees. BecauseLand Securities the lifetime Group of our assetsPLC can be Our new Sustainability Brief clearly sets What is helpful? anything between five and 50 years, we need out our sustainability ambitions for The extracts over the following pages show linkage of information to the Ourbusiness findings model and strategy, including linkage across toAnnual take action Report to2018 address risks now. Through developments, the role our designers reports, and time, between metrics and qualitative disclosures puttingIn the the disclosures period in up context. to 2030, our analysis showed ourp43 Responsible Property Investment Policy and delivery partners can play in creating risks of natural hazards are unlikely to increase we’re continuing to assess energy efficiency and the best experiences, and how we in a material way as a direct result of climate climate risks when we buy new assets. Beyond measure success. change. Natural weather variability will continue, 2030, we may need to consider selling assets with high residual risk from natural hazards. You can find both documents at landsec.com

To assess these risks we have worked with which means storms and flooding could We usually design our developments to last Report Strategic Willis Towers Watson, conducting research continue to affect our assets. We also found Our60 years. new Using Sustainability our Sustainability Charter Brief for using stochastic modelling to help determine that an increase in average temperature is anddevelopments Brief and engineering specifications, the likelihood of potential weather patterns likely to affect our operational costs of cooling we will continue to create resilient assets Climate change advocacy and natural hazards. The modelling looked and heating, but not in a financially material capable of withstanding extreme temperature at how future weather patterns are likely to way. Our modelling shows the requirements changes.This year And we we’ll introduced continue two to includenew warmer impact our assets over two time horizons: for more cooling, but less heating, will broadly temperaturesdocuments into our help design us progress parameters our to We recognise we can’t solve key up to 2030 and beyond 2030. cancel each other out when it comes to costs. ensuresustainability we don’t createprogramme. unnecessary heating sustainability issues on our own. That’s capacity. To manage our buildings effectively, why we actively support public policy The likelihood of future weather events was The effects beyond 2030 are likely to be weOur will newcontinue Sustainability to invest inCharter controls clearly and and regulation on issues that align modelled based on the four Representative different. The risk of inland flood, coastal flood efficientoutlines ourenergy expectations systems in andthe ambitionsperiod to 2030.to with our business. Some of our actions Concentration Pathways (RCPs) which are and windstorm will increase. The impact of Andall we’ll partners. continue We touse assess it to support our insurance proactive on advocacy: used by the Intergovernmental Panel on Climate these hazards will become more relevant productsconversations to ensure and we it have includes adequate a pledge cover. we — We became the first property company Change (IPCC) to illustrate future concentrations towards 2050, resulting in an increased negative require partners to take. So, when we’re in the world to have its carbon emission of greenhouse gases in the atmosphere. We impact on the current Landsec portfolio if our Ouragreeing disclosure contracts or planning a new target approved by the Science Based focused on a best-case scenario, where global control measures remain the same. Ourproject existing together, processes this give charter us confidence plays an that Targets initiative. This commits Landsec average temperature increases by two degrees, ourimportant business activities, part in the strategy conversation. and financial to reduce emissions in line with the and a worst-case scenario, with a temperature Our response planning are resilient to climate-related risks requirements of the global 2 degree Our new Sustainability Brief clearly sets increase of four degrees. Because the lifetime of our assets can be and we are currently well positioned to benefit warming target. anything between five and 50 years, we need out our sustainability ambitions for from the transition to a low carbon economy — We were one of the first property Our findings to take action to address risks now. Through developments, the role our designers through to 2030. These processes will also help companies to join the We Mean In the period up to 2030, our analysis showed our Responsible Property Investment Policy and delivery partners can play in creating us to mitigate risk after 2030, as the effects of Business coalition’s RE100 and EP100 risks of natural hazards are unlikely to increase we’re continuing to assess energy efficiency and the best experiences, and how we climate change become more severe. We’re campaigns, a group of influential in a material way as a direct result of climate climate risks when we buy new assets. Beyond measure success. committed to the ongoing review of these risks businesses committed to procuring change. Natural weather variability will continue, 2030, we may need to consider selling assets and will reassess if there are major changes to renewable energy and improving energy with high residual risk from natural hazards. You can find both documents at our portfoliolandsec.com or unexpected changes to the productivity. trajectory of climate change. We usually design our developments to last — We are active members of the UK 60 years. Using our Sustainability Brief for You can see full details on how we’re Green Building Council and Better developments and engineering specifications, responding to TCFD in our Sustainability Buildings Partnership, working with Quick read Introduction Regulatory and marketwe will1 Investorcontinue expectations to create 2resilientAppendix Aassets – questions 3 AppendixClimateData B – examples Performance change 4 Appendix Reportadvocacy C – participants at landsec.com 5 Appendix D – regulatory our peers to help the entire industry overview capableand of company withstanding views extremeand recommended temperature of developing practice and process and market initiatives disclosures improve. changes. And we’ll continue to include warmer We recognise we can’t solve key — We are working with a coalition chaired temperatures in our design parameters to by the World Business Council on ensure we don’t create unnecessary heating sustainability issues on our own. That’s why we actively support public policy Sustainable Development to expand capacity. To manage our buildings effectively, science-based target methodologies we will continue to invest in controls and and regulation on issues that align with our business. Some of our actions for the built environment, helping more efficient energy systems in the period to 2030. companies take action. And we’ll continue to assess our insurance on advocacy: products to ensure we have adequate cover. Westgate— We –became one of the the first property company UK’s lowestin the carbon world to have its carbon emission Our disclosure shoppingtarget centres, approved by the Science Based Our existing processes give us confidence that deliveringTargets efficiency initiative. This commits Landsec our business activities, strategy and financial today,to and reduce resilience emissions in line with the planning are resilient to climate-related risks for therequirements future. of the global 2 degree and we are currently well positioned to benefit warming target. Landsec Annual Report 2018 43 from the transition to a low carbon economy — We were one of the first property through to 2030. These processes will also help companies to join the We Mean us to mitigate risk after 2030, as the effects of Business coalition’s RE100 and EP100 climate change become more severe. We’re campaigns, a group of influential committed to the ongoing review of these risks businesses committed to procuring and will reassess if there are major changes to renewable energy and improving energy our portfolio or unexpected changes to the productivity. trajectory of climate change. — We are active members of the UK You can see full details on how we’re Green Building Council and Better responding to TCFD in our Sustainability Buildings Partnership, working with Data Performance Report at landsec.com our peers to help the entire industry improve. — We are working with a coalition chaired by the World Business Council on Sustainable Development to expand science-based target methodologies for the built environment, helping more companies take action.

Westgate – one of the UK’s lowest carbon shopping centres, delivering efficiency today, and resilience for the future.

Landsec Annual Report 2018 43 Climate-related corporate reporting 76

TCFD: Data sources Table 30 Projections Analysis 2017 analysis 2019 analysis Source Energy Consumption Modelling Now out of date Updated UKCP18 previously CMIP5 Flood Risk Exposure & Scoring Now out of date Updated Swiss Re CatNet; Munich Re NATHAN Probabilistic Modelling Current No update minimal impact CCRA Report 2017; (Next update 2022 ) Sea Level Rise Exposure & Scoring Now out of date Updated UKCP18 previously CCRA 2017 after UKCP09 Windstorm Probabilistic Modelling Current No update minimal impact ABI Report 2017 Temperature Review Now out of date Updated UKCP18 previously CMIP5 Precipitation Review Now out of date Updated UKCP18 previously CMIP5

TCFD Metrics and targets Table 29 Land Securities Group PLC Financial category Climate related category Metric Unit of measure Landsec 2017/18 2018/19 Revenues Risk Adaptation & Mitigation Revenues/savings from investments in low-carbon alternatives £ 1,538,662.58 1,918,389.31 (e.g., R&D, equipment, products, services) Sustainability Performance and Data 2019 Revenues Risk Adaptation & Mitigation Avoided energy consumption costs benefitting customers in year, £ – £4.0m1 p29,30 measured against 2013/14 baseline Revenues Risk Adaptation & Mitigation Percentage of revenues derived from BREEAM certified assets £ 56% 57% Expenditures Risk Adaptation & Mitigation Expenditures (OpEx) for low-carbon alternatives (e.g., R&D, technology, £ 1,716,526,526.10 1,457,997.84 products, services) Energy/Fuel Total energy consumption kWh 265,723,992.15 265,571,273.86 Energy/Fuel Proportion of energy consumption from renewable sources % 64% 66% Energy/Fuel Total electricity consumption kWh 167,507,064.49 167,590,019.79 Energy/Fuel Proportion of electricity consumption from renewable sources % 93% 96% Energy/Fuel Total fuel consumption (i.e. gas) kWh 86,337,790.66 81,310,160.07 Energy/Fuel Proportion of fuel consumption from renewable sources (i.e. green gas) % 17% 16% Energy/Fuel Total building energy intensity by floor area kWh/m2 144 142 Energy/Fuel Forecast change in energy cost by 2100, four-degree scenario £ – £0.9m2 Water Percent of fresh water withdrawn in regions with high or extremely high m3 0 0 baseline water stress Water Total building water intensity by floor area m3/m2 0.57 0.56 2 3 GHG Emissions Total GHG emissions intensity by floor area tCO2e/m 0.052 0.043 Assets Location Percentage floor area of portfolio exposed a 10-20% risk of inland, coastal % floor area 0.4% 0.3% and flash flooding in a ten-year period Location Percentage value of portfolio exposed to a 10-20% risk of inland, coastal % Value 1.5% 1.4% and flash flooding in a ten-year period4 Location Insured value of assets exposed to possible significant increase in river flood £ £5.7m £7.0m5 risk due to climate change Location Insured value of assets exposed to possible significant increase in coastal £ £281m £257.3m6 flood risk due to climate change Risk Adaptation & Mitigation Percentage of portfolio which is BREEAM certified % floor area 40.1% 40.2% Risk Adaptation & Mitigation Percentage of portfolio which is BREEAM certified % portfolio 61% 60% value Risk Adaptation & Mitigation Investment (CapEx) in low-carbon alternatives (e.g., capital equipment £ 4,402,019.00 2,377,136.00 or assets) Risk Adaptation & Mitigation Costs of obtaining Energy Performance Certificates for assets which £ – £0.3m are not currently certified7

1 Consumption costs measured in 2018/19, based on comparable floor area from 2013/14 portfolio. Sustainability Performance and Data 2019 30 2 Increase in cooling costs offset by decrease in gas costs. 3 This figure is based on absolute energy across scopes 1,2 and 3. 4 Based on a return period of 50-100 years meaning there is a 1-2% chance every year or 10-20% in the next 10 years that flooding would occur. 5 Acquired one new asset in river flood risk zone. 6 Divested two assets in coastal flood risk zone. 7 30% of our assets must obtain an EPC before 2023.

Sustainability Performance and Data 2019 29 Quick read Introduction Regulatory and market 1 Investor expectations 2 Appendix A – questions 3 Appendix B – examples 4 Appendix C – participants 5 Appendix D – regulatory overview and company views and recommended of developing practice and process and market initiatives disclosures Sustainability performance continued Sustainability performance

and ethical parameters. In the year ahead as our development pipeline progresses to construction, we will report our quantitative progress Climate-Related Risks and Opportunities against this target. We are committed to implementing the recommendations of the Task For us, sustainability is about the actions we take to fulfil our purpose year ahead.Biodiversity Employers who have yet to transition to the Living Wage Force on Climate-Related Financial Disclosures (TCFD). As an owner and so Landsec prospers far into the future. We want customers to prefer by 2020Commitment: agreed to Maximisecommunicate the biodiversity this commitment potential to oftheir all staff.our development operator of property, our business is exposed to both risk and opportunity our spaces. We want communities to be pleased it’s us operating in their and operational sites and achieve a 25% biodiversity net gain across our from climate change. Here we provide data and insight about the Diversity area. We want partners to share our priorities. And we want employees five sites currently offering the greatest potential, by 2030. climate-related risks and opportunities which are relevant to our business. to invest their energy and ambition here. When we get all this right, Commitment: Make measurable improvements to the profile – in terms we create value for our investors. of Performance:gender, ethnicity On and track. disability – of our employee mix. The nature and level of climate-related risk is dependent on government, In the year we extended our biodiversity commitment to our assets in business and society’s response in the short and long term. In the event Performance: On track. To deliver this we’ve set twelve long-term sustainability commitments, London and are assessing opportunities for installations in the year of a strong response to climate change in the short term up to 2030, our We continue to meet Hampton Alexander targets with 40% of the Board covering each of our priority areas of creating jobs and opportunities, ahead. We’ve planned and secured budget for biodiversity enhancements business will be affected in positive and negative ways by the transition and 42% of Executive Committee and direct reports being female versus efficient use of natural resources and sustainable design and innovation. to the five sites offering the greatest potential, which will deliver net gain period. With a limited response to climate change, our business will be targets of 33%. We have improved disclosure of diversity data in the This section includes a summary of our performance against those in biodiversity at each site of between 5% and 25%. Completed projects affected in the long term past 2030 by physical effects such as extreme organisation which has allowed us to set meaningful targets for 2025 commitments and our key disclosures. include a 220m2 wildflower garden installed at Hatfield Galleria and weather and higher temperatures. around a broader set of diversity characteristics. However, we have planting of aquatic plant species in the lakes at White Rose, Leeds. We’re For more information please visit landsec.com/sustainability. moved backwards in terms of female representation at Leader level in also committed to delivering net gain through our development pipeline, Our exposure to climate risk is determined through analysis of our the organisation (2018: 24.4%; 2019: 19.5%). and our 21 Moorfields development will deliver over 1,700m2 of new green property portfolio, using climate and natural hazard databases such as SwissRe CatNet™ and MunichRe NATHAN™, and is further adjusted Climate-related corporate reporting Health,walls, treesSafety and and plants, Security totalling 76 different species. We are developing based on expert judgement. Our research incorporates the Met Office 77 Creating Jobs and Opportunities Commitment:a strategy for Maintainall future an developments exceptional standardto deliver ofnet health, gain. safety and Climate Projections 2018 (UKCP18), which are widely accepted as the security in all the working environments we control. Community employment Wellbeing most accurate forecasts for how climate change will affect the climate Commitment: Help a total of 1,200 people furthest from the jobs Performance:Commitment:On Ensuretrack. our buildings are designed and managed to and weather in the UK. market to secure employment by 2020. Wemaximise continually wellbeing prepare and the productivity.business to anticipate and respond to Land Securities Group PLC Based on our analysis, we are confident our strategy for investing in incidents and this year have enhanced our security training and advice Performance: On track. high-quality assets in primary locations will continue to be resilient in Performance: Complete. for employees and partners. We continue to lead and participate Annual Report 2019 Using learnings from our 80-100 Victoria Street project we’ve adopted this scenario. However, to maintain an effective strategy we will need Since 2011 we’ve secured employment for 1,336 people furthest from in a number of cross-industry forums in the fields of health, safety wellbeing clauses in our engineering specifications and design briefs. This top129 increase our prioritisation of climate change factors in investment, the job market through our programme. In the year we secured 187 and security. jobs, 105 in London and 82 in Retail. To deliver on this commitment, will ensure our developments deliver specific wellbeing outcomes and that development and divestment decisions. Sustainability performance we launched the UK’s first-ever aerial window cleaning training Thiscustomers year we’ve are again not preventedwe maintained from achievingour OHSAS the 18001 WELL™ certification standard during Our approach to climate risk and opportunity is discussed further under continued academy at Her Majesty’s Prison & Young Offender Institution Isis, and across 100%their fit out. of ourOur sites.commercial Following office the Grenfell developments fire, we focusworked on closelythe delivery of principal risks and uncertainties on page 59. Full disclosure of climate Ambition:Leeds, a new training academy for retail and hospitality talent, withoptimal customers, air and partners water quality, and other daylighting, key stakeholders acoustic to and consider thermal the comfort. change scenarios and how they may affect our business are included responding to demand from retailers for more skilled recruits ready to potentialIn addition ramifications to core technical of cladding design across factors, our we’reportfolio. focusing on delivering join their workforce. Toward the end of the year, we set an ambitious wellbeing features, with our 21 Moorfields development featuring a in our Sustainability Performance and Data Report at landsec.com/ new commitment to create £25m of social value by 2025 through our central atrium and glazed stairwells to maximise penetration of daylight, sustainability. and ethical parameters. In the year ahead as our development pipeline community employment activities. a Zen garden and staff wellness centre. progresses to construction, we will report our quantitative progress Climate-Related Risks and Opportunities Efficient Use of Natural Resources Climate-Related Financial Metrics Table 106 against this target. Cumulative total number of jobs secured Chart 101 2018/19 2017/18 Change We are committed to implementing the recommendations of the Task Carbon £m £m £m Biodiversity Force on Climate-Related Financial Disclosures (TCFD). As an owner and Commitment: Reduce carbon intensity (kgCO e/m2) by 40% by 2030 1,400 Green building certifications 2 Value of BREEAM certified assets 8,283 8,631 (348) Commitment: Maximise the biodiversity potential of all our development operator of property, our business is exposed to both risk and opportunity compared with a 2013/14 baseline, for property under our management 1,336 Percentage of total portfolio value 60% 61% (1)% and operational sites and achieve a 25% biodiversity net gain across our from1,200 climate change. Here we provide data and insight about the for at least two years. Table 105 Rental income derived from BREEAM 387 369 18 five sites currently offering the greatest potential, by 2030. climate-related1,000 risks and opportunities which are relevant to 1,149our business. 1 BREEAM certified space 2018/19 2017/18 % change certified assets Performance: On track. 800 962 Landsec% of floor carbon area emissionswhich is BREEAM intensity pathway40.2% 40.1%Chart 0.2%102 The nature and level of climate-related risk is dependent on government, 2 Percentage of rental income 57% 56% 1% In the year we extended our biodiversity commitment to our assets in 779 certified (m ) business600 and society’s response in the short and long term. In the event 90 Operational expenditure in low- 1 1 – Outstanding 0.2% 0.2% 0.2% London and are assessing opportunities for installations in the year of a strong response to climate583 change in the short term up to 2030, our 80 carbon equipment and products ahead. We’ve planned and secured budget for biodiversity enhancements business400 will be affected in positive and negative ways by the transition Excellent 19.4% 19.3% 0.2% 426 70 Savings from investments in 1 1 – to the five sites offering the greatest potential, which will deliver net gain period.200 With a limited response to climate change, our business will be Very60 Good 17.7% 17.7% 0.2% low-carbon equipment and products in biodiversity at each site of between 5% and 25%. Completed projects affected in206 the long term past 2030 by physical effects such as extreme 2 2 0 Good50 / Pass 2.9% 2.9% (0.6)% Capital expenditure in low-carbon 4 5 (1) e/m include a 220m wildflower garden installed at Hatfield Galleria and weather and higher temperatures. 2 2013 2014 2015 2016 2017 2018 2019 equipment and products planting of aquatic plant species in the lakes at White Rose, Leeds. We’re 1.402017/18 figures have been restated to account for information related to the entire

Kg CO Kg Avoided energy consumption costs 4 3 1 Our Jobsexposure Target to climate risk is determined through analysis of our 30portfolio, including properties outside our operational control (e.g. FRIs). also committed to delivering net gain through our development pipeline, measured against 2013/14 baseline 2 property portfolio, using climate and natural hazard databases such and our 21 Moorfields development will deliver over 1,700m of new green The20 table above outlines the percentage of our portfolio certified by as SwissReFairness CatNet™ and MunichRe NATHAN™, and is further adjusted Forecast increase in energy costs 1 1 – walls, trees and plants, totalling 76 different species. We are developing BREEAM,10 and the breakdown of ratings. BREEAM is an established basedCommitment: on expert judgement.By 2020, ensure Our research everyone incorporates working on theour behalf,Met Office in an resulting from climate change a strategy for all future developments to deliver net gain. assessment0 method and rating system for buildings and continues by 2100 Climateenvironment Projections we control, 2018 (UKCP18), is given equalwhich opportunities, are widely accepted protected as the from to be a2014 valuable2019 benchmark2024 for 2029sustainable2034 design.2039 2044 2050 Wellbeing mostdiscrimination accurate forecasts and paid for at how least climate the Foundation change will Living affect Wage. the climate Insured value of assets exposed to 7 6 1 possible significant increase in river Commitment: Ensure our buildings are designed and managed to and weather in the UK. Landsec pathway – target Sector pathway Performance: On track. Landsec pathway – actual Landsec pathway – projected flood risk due to climate change maximise wellbeing and productivity. by 2100 BasedWe continue on our analysis, to be an we accredited are confident Living ourWage strategy employer, for investing both for in our Performance: On track. high-qualityemployees assets and those in primary working locations on our behalf.will continue This year to bewe resilient joined thein Performance: On track. Insured value of assets exposed to 257 281 (24) possible significant increase in Using learnings from our 80-100 Victoria Street project we’ve adopted Living Wage Employers’ Group, a cross-industry partnership tasked with We’ve reduced carbon intensity by 39.8% compared to 2013/14 baseline, this scenario. However, to maintain an effective strategy we will need coastal flood risk due to climate significantly outperforming our target pathway. This is an improvement wellbeing clauses in our engineering specifications and design briefs. This to drivingincrease adoption our prioritisation of Foundation of climate Living change Wage rates factors in thein investment, supply chain. change by 2100 will ensure our developments deliver specific wellbeing outcomes and that developmentIn the year weand carried divestment out due-diligence decisions. in our service and construction compared to the 2017/18 reduction of 28.6%. These reductions have been customers are not prevented from achieving the WELL™ standard during partner’s organisations to gauge adherence to our Living Wage achieved through a combination of energy efficiency projects, changes their fit out. Our commercial office developments focus on the delivery of Ourcommitment. approach to Results climate indicate risk and there opportunity are some is discussedareas where further rates under are in 192our portfolio, and changesLandsec in emissions Annual Reportfactors. 2019 In the year we’ve optimal air and water quality, daylighting, acoustic and thermal comfort. principalnot being risks met, and we uncertainties will focus our on engagementpage 59. Full disclosureon these areas of climate in the successfully transitioned projects in our development pipeline away from In addition to core technical design factors, we’re focusing on delivering change scenarios and how they may affect our business are included wellbeing features, with our 21 Moorfields development featuring a in our Sustainability Performance and Data Report at landsec.com/ central atrium and glazed stairwells to maximise penetration of daylight, sustainability.190 Landsec Annual Report 2019 a Zen garden and staff wellness centre. Climate-Related Financial Metrics Table 106 2018/19 2017/18 Change £m £m £m Green building certifications Value of BREEAM certified assets 8,283 8,631 (348) Percentage of total portfolio value 60% 61% (1)% Table 105 Rental income derived from BREEAM 387 369 18 1 BREEAM certified space 2018/19 2017/18 % change certified assets % of floor area which is BREEAM 40.2% 40.1% 0.2% QuickPercentage read of rental income Introduction57% 56%Regulatory 1% and market Investor expectations Appendix A – questions Appendix B – examples Appendix C – participants Appendix D – regulatory certified (m2) 1 2 3 4 5 Operational expenditure in low- 1 1 overview – and company views and recommended of developing practice and process and market initiatives Outstanding 0.2% 0.2% 0.2% carbon equipment and products disclosures Excellent 19.4% 19.3% 0.2% Savings from investments in 1 1 – Very Good 17.7% 17.7% 0.2% low-carbon equipment and products Good / Pass 2.9% 2.9% (0.6)% Capital expenditure in low-carbon 4 5 (1) equipment and products 1. 2017/18 figures have been restated to account for information related to the entire portfolio, including properties outside our operational control (e.g. FRIs). Avoided energy consumption costs 4 3 1 measured against 2013/14 baseline The table above outlines the percentage of our portfolio certified by Forecast increase in energy costs 1 1 – BREEAM, and the breakdown of ratings. BREEAM is an established resulting from climate change assessment method and rating system for buildings and continues by 2100 to be a valuable benchmark for sustainable design. Insured value of assets exposed to 7 6 1 possible significant increase in river flood risk due to climate change by 2100 Insured value of assets exposed to 257 281 (24) possible significant increase in coastal flood risk due to climate change by 2100

192 Landsec Annual Report 2019 Climate-related corporate reporting 78

Section 4 Appendix C – participants and process

Process Companies Investors Participants join projects by responding to a public call A range of companies have discussed their reporting - Aberdeen Standard Investments or being approached by the Lab. An iterative approach and views on the issues, but the following are those - Artemis Investment Management is taken, with additional participants sought during the organisations with which we have had more in-depth - Asset Management One project, though it is not intended that the participants discussions: - Blackrock represent a statistical sample. References made to views - BMO GAM - Aviva plc of ‘companies’ and ‘investors’ refer to the individuals - British Columbia Investment Management - DS Smith plc from companies and investment organisations that - Church Commissioners of England - Fujitsu Laboratories of Europe participated in this project, but it may not necessarily - CCLA Investments - Fresnillo plc - Data User Workshop Group reflect the views, policies or commitments of the - Halma plc individual companies. Views do not necessarily represent - Evenlode Investments - Howdens plc - Glass Lewis those of the participants’ companies or organisations. - HSBC Holdings plc - Hermes Investment Management Views were received from a range of UK and - InterContinental Hotels Group plc - HSBC Global Asset Management international institutional investors, analysts and retail - Land Securities Group plc - IFM Investors investors through a series of in-depth interviews and - National Grid plc - Institutional Investor Group on Climate Change roundtables. We also heard from a range of companies - Nestle S.A. - Invesco - Oil Search through FRC-led roundtables, one-to-one interviews or Ltd - Japan Stewardship Forum - Olam International Ltd roundtables with other agencies. - Lazard Asset Management - SSE plc - Legal and General Investment Management Thank you to the design agency Superunion for holding a - Thames Water Utilities Ltd - Martin Currie Investment Management roundtable at which we were able to gather a company - Unilever plc - M&G perspective. Thank you also to the Institute of Chartered - Vodafone plc - Merian Global Investors Secretaries and Administrators and the Joint Forum of - Moodys Investor Services Actuarial Regulation for allowing us to attend meetings - National Employment Savings Trust (NEST) to gain valuable insights from their perspectives. - Neuberger Berman - Norges Bank Investment Management - NYC Office of the Comptroller Participants - RBC Global Asset Management Thank you to all of the participants for contributing - Royal London Asset Management their time to this project. - RPMI Railpen - Sarasin Investment Partners - S&P Global The Lab received a great deal of support from a wide - Schroders Investment Management range of organisations throughout this project, - Sustainalytics particularly those organisations that have been working - Sustainabiliy Accounting Standards Board on climate-related issues for a number of years. This - Trucost - UK Sustainable Investment Forum assistance has been invaluable, and we thank these - Universities Superannuation Scheme organisations for giving so generously of their time. - Retail Investor Representatives (2) - US Institutional Investors (5)

Section 5 Appendix D – regulatory and market initiatives

This section covers the main regulatory and market initiatives relevant to companies’ disclosure on climate change. There has been a lot of recent change in the external environment and this is not intended to be a comprehensive coverage of all initiatives, frameworks and legal and regulatory requirements which may be relevant.

While in the UK there is no requirement to report on climate change specifically, there out in section 172(1)(a) to (f) of the Companies Act when performing their duties are many reporting requirements that may require companies to address climate- under section 172, which in section (1)(d) relates to the impact of the company's related issues. operations on the community and the environment. Reporting requirements Since 2013 UK quoted companies have been required to report their annual greenhouse gas (GHG) emissions in the Director’s Report. Companies must disclose Companies Act 2006 their Scope 1 and Scope 2 emissions, and an intensity ratio. There are a number of sections of theCompanies Act 2006 that may encourage, or Streamlined Energy and Carbon Reporting require disclosure of climate-related matters. For example, section 414C provides that: As of April 2019, companies have had to report in accordance with the Streamlined “ The strategic report must contain… (2)(b) a description of the principal risks and Energy and Carbon Reporting (SECR) scheme. The regulations introduced reporting uncertainties facing the company… [and] (4) The review must, to the extent necessary requirements for large unquoted companies and for limited liability partnerships for an understanding of the development, performance or position of the company’s (LLP), and include additional disclosure requirements for quoted companies. The business, include… (b) where appropriate, analysis using other key performance Environmental Reporting Guidelines contain details of what is required by SECR over indicators, including information relating to environmental matters and employee and above previous requirements, including reporting to total global energy use, matters.” energy efficiency action as well as the methodology used to calculate the disclosure Sections 414C (7) requires disclosures, to the extent necessary for an understanding of requirements. The FRC is developing an XBRL taxonomy for the tagging of SECR-related the development, performance or position of the company’s business, on the impact of information. This may include some TCFD-specific tags. the company’s business on the environment. Disclosure and Transparency Rules Disclosures regarding principal risks and uncertainties may also be required under the There are a number of areas of the FCA's rules that may also require disclosure of Companies Act where climate-related issues are material, and will likely form part of climate-related issues. For example, under the FCA’s Disclosure and Transparency the newer section 414CB requirement to consider the principal risks that the company Rules the annual financial report must contain a number of elements, including a poses to the outside world more generally. management report (DTR 4.1.5). Under DTR 4.1.8 R, “The management report must Section 172 requires that: contain… (2) a description of the principal risks and uncertainties facing the issuer.” “ A director of a company must act in the way he considers, in good faith, would be FRC guidance most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to— (a)the likely The 2018 Guidance on the Strategic Report provides further detail of where companies consequences of any decision in the long term… (d)the impact of the company's may need to consider climate change, including within their disclosures on their operations on the community and the environment”. business environment, and principal risks and uncertainties. There may also be financial statements implications for some companies that will need In addition, in the2016 year end advice letter, the FRC encouraged companies to to be disclosed. consider a broad range of factors, including climate change, when determining the principal risks and uncertainties facing the business. In their Strategic Reporting, companies are now also required to include a Section 172(1) statement describing how directors have had regard to the matters set The FRC's year end advice letter, and annual review of corporate reporting, will be published shortly.

The FRC’s Corporate Reporting Review function has received a number of complaints In October 2018 the FCA released a discussion paper on climate change and green regarding a perceived lack of sufficient disclosure on climate change issues, particularly finance, stating “climate change is likely to have a significant impact on the UK’s in the principal risks and uncertainties section of the Strategic Report. An overview of economy and financial services market”, and the discussion paper explains how climate this activity is included in the FRC’s Annual Review of Corporate Reporting. change-related matters are relevant to their statutory objective. The FCA notes that, not only that those they regulate must ensure they have adequate controls in place The updated UK Corporate Governance Code requires Boards to discuss how the for considering risks, including those from climate change, but also responding to matters (including impact of the environment) set out in section 172 of the Companies increasing demand for ‘green’ financial services products. On 16 October the FCA Act 2006 have been taken into account. Provision 1 of the 2018 Corporate Governance published a Feedback Statement summarising the responses they received from Code states that “the board should assess the basis on which the company generates stakeholders and their intended actions and next steps. and preserves value over the long-term. It should describe in the annual report how opportunities and risks to the future success of the business have been considered and In addition, the PRA and FCA have established theClimate Financial Risk Forum (CFRF) addressed, the sustainability of the company’s business model and how its governance to “build capacity and share best practice across financial regulators and industry to contributes to the delivery of its strategy.” advance financial sector responses to the financial risks from climate change”. The Forum aims to address climate-related financial risks by developing practical tools and The proposed UK Stewardship Code requires signatories to take into account material approaches. environmental, social and governance factors, such as climate change, when fulfilling their stewardship responsibilities. The Pensions Regulator’s Updated Guidance on DC Schemes provides guidance to pensions trustees as they meet the extended disclosure requirements for their Green Finance Strategy Statement of Investment Principles to include material environmental, social and governance matters. The FRC published a joint regulatory statement on climate change alongside the PRA, FCA and TPR on 2 July. The FRC also issued a separate statement. European activity These statements were released to coincide with the launch of the Government’s In March 2018 the European Commission released its Sustainable Finance Action . The strategy set out the Government’s expectation that Green Finance Strategy proposing changes to the policy framework better to integrate sustainability all listed companies and large asset owners should disclose in line with TCFD Plan considerations and mobilise sustainable growth. This Action Plan builds on the work of recommendations by 2022. It also launched a regulatory ‘taskforce’ to discuss the most the High-Level Expert Group on Sustainable Finance. effective way to approach reporting, including exploring mandatory requirements. The EU’s Non-Financial Reporting Directive (NFRD) requires large companies to publish Other regulatory activity regular reports on the social and environmental impacts of their activities. It requires, The PRA published a Supervisory Statement in April 2019 which sets out expectations for example, the disclosure of a non-financial information statement. for banks’ and insurers’ approaches to managing the financial risks from climate In June 2019, the Technical Expert Group on Sustainable Finance (TEG) released a change. It states that “while the financial risks from climate change may crystallise in number of reports, including updated guidelines for the Non- Financial Reporting full over longer time horizons, they are also becoming apparent now. In terms of the Directive to include advice on how to align disclosures with the recommendations current approach, the Supervisory Statement notes that while firms are enhancing their of the TCFD; a Technical Report on its work on the development of a classification approaches to managing the financial risks from climate change, “few firms are taking a system for environmentally sustainable economic activities (an EU classification system strategic approach that considers how actions today affect future financial risks”. for sustainable activities, i.e. an EU taxonomy, with separate sections for mitigation The Network for Greening the Financial System, of which the Bank of England is a and adaptation); and anInterim Report on climate benchmarks and benchmarks’ member, made several recommendations from the perspective of Central Banks as to environmental, social and governance disclosures. The updated NFRD guidance what is needed for better disclosure of climate risks.

The CDSB also hosts the TCFD Knowledge Hub, which provides best practice examples Carbon Tracker is an independent financial think tank that carries out in-depth analysis of reporting. The TCFD hub has also recently been updated with a series ofonline on the impact of the energy transition on capital markets and the potential investment courses designed to help organisations fill the knowledge gap and enhance their in high-cost, carbon-intensive fossil fuels. It has been working in this area for a number disclosures of climate-related information. Current courses are as follows: Introduction of years, including developing in-depth research on stranded assets. Its most recent to climate-related disclosures – starting your climate journey; Understanding report, Reporting for a Secure Climate, includes a model disclosure for the upstream the recommendations of the TCFD; and Embedding climate change into financial oil and gas sector which addresses current reporting requirements and fits within the management – climate-related reporting for accountants. TCFD framework. The Sustainability Accounting Standards Board’s (SASB) mission is to help businesses The Science Based Targets Initiative assists companies in setting, and assessing, identify, manage and report on the sustainability topics that matter most to their whether their targets for greenhouse gas emissions reduction are within scientific investors. They offer standards that are specific for each industry, and materialitya boundaries. “Targets adopted by companies to reduce greenhouse gas emissions are map for businesses in those industries to identify material topics. SASB describe five considered ‘science-based’ if they are in line with what the latest climate science says materiality dimensions, and the ‘Physical Impacts of Climate Change’ falls under the is necessary to meet the goals of the Paris Agreement—to limit global warming to well- Business Model and Innovation dimension. below 2°C above pre- industrial levels and pursue efforts to limit warming to 1.5°C”. The CDSB and SASB also joined forces to launch a TCFD Implementation Guide, In 2018, Ceres published Disclose What Matters: Bridging the Gap Between Investor addressing how the SASB Standards and CDSB framework can be used to enhance Needs and Company Disclosures on Sustainability, assessing sustainability disclosures climate-related reporting and align with TCFD. These two organisations have also of the world's largest companies. This report found that, whilst many of these published the TCFD Good Practice Handbook – A companion Guide to the TCFD companies disclose sustainability information, only a small percentage of companies Implementation Guide, which identifies good practices in implementing the TCFD disclose the business relevance of these risks and opportunities. recommendations. The Global Association of Risk Professionals (GARP) publishedClimate Risk The Global Reporting Initiative (GRI) developed a standards framework to help Management at Financial Firms – Challenges and Opportunities, assessing activity on businesses understand and communicate their impact on critical sustainability issues climate-related issues within financial services firms. This document finds that climate such as climate change, human rights, governance and social well-being. The GRI change is now seen by many firms as a financial risk that needs to be integrated into Sustainability Reporting Standards GRI( Standards) are a set of universal standards, existing risk management frameworks. which report on relevant contextual information and how material topics are managed, with further topic-specific standards. Investor groups and activities The Principles for Responsible Investment (PRI) announced in early 2019 that TCFD- The CDP runs a system for organisations to report their greenhouse gas emissions, water management and climate change strategies. The questions in newer iterations based reporting will become mandatory for PRI signatories in 2020. This builds on the of the CDP framework are now more explicitly linked to the TCFD. Many companies PRI’s voluntary framework requirements, which have been in place over the past two and investors mentioned the CDP database as a useful resource, particularly in years. The TCFD-related requirements will be mandatory to report but voluntary to understanding companies’ data trends. publicly disclose in 2020. The Inevitable Policy Response (IPR) initiative, which groups together the PRI, Energy The ‘Better Alignment’ project is focused on driving Corporate Reporting Dialogue’s Transition Advisors, Vivid Economics, Carbon Tracker, the 2 Degrees Investing Initiative alignment in the corporate reporting landscape, to make it easier for companies to and the Grantham Research Institute, publishes documents assessing when, and prepare effective and coherent disclosures that meet the information needs of capital in what form, a policy response is likely to be forthcoming on climate change. In markets and society. On 24 September 2019 Driving Alignment in Corporate Reporting September at PRI in Person, policy forecasts throughout the 2020s were released, in was published. order to allow investors to assess how their portfolios could be impacted.

The 2018 Global Investor Statement to Governments on Climate Change was A number of organisations have been working to improve directors’ knowledge about published in December 2018 and supported by a range of investor groups, including the challenges of climate change. These include Chapter Zero, a recently launched Ceres, The Institutional Investors Group on Climate Change (IIGCC) and the PRI. It initiative under the auspices of Hughes Hall, University of Cambridge, of a network of explicitly endorsed reporting under the TCFD. non-executive directors of UK listed businesses, as part of the World Economic Forum Climate Governance Initiative. This network is for chairs, committee chairs and non- The IIGCC has also published a guide for institutional investors regardingscenario executive directors who are interested in accessing research and practical tools on analysis, and has been supporting the work of the Climate Action 100+ Group. On 2 climate change. September, Climate Action 100+ launched its first initiativeprogress report. This report highlights some specific areas of progress, but also ongoing challenges, including The World Business Council on Sustainable Development has also been assisting around priority areas of engagement: lobbying reform: net zero goals or targets: and companies in ensuring they are up to speed on the climate challenge by, for example, TCFD implementation. hosting sector specific preparer forums, and releasing its own reports onTCFD implementation and disclosure. Investors are also under market, and regulatory, pressure to improve their reporting on climate change issues. The UN Environment Programme Finance Initiative (UNEPFI) Internationally, CPA Canada has also been developing educational resources for created the Investor Pilot on TCFD Adoption. This included a group of large asset companies, for example on the challenges of climate change and the assessment and owners and concluded that $10.7trn of assets under management could be wiped out disclosure of materiality. by a transition to a 1.5°C economy. There has also been activity in the assurance and auditing arenas. Whilst not climate- In September 2019, the Investor Leadership Network published TCFD Implementation, specific, the IAASB has been working on a project on assurance over emerging forms of Practical Insights and Perspectives from Behind the Scenes for Institutional Investors. reporting. This document is intended to assist asset owners and fund managers in making better A number of law firms have also been bringing to their clients’ attention the evolving choices to define their climate change strategies and disclosures. The ILN is aiming nature of liability risks related to climate change. For example, Clyde and Co in their to expand the adoption of uniform and comparable disclosures under the TCFD report . framework. Resilience Trucost, part of S&P Global, assesses risks relating to climate change, natural resource constraints, and broader environmental, social, and governance factors. It provides information for investors and, in reports such asTCFD Scenario Analysis: Integrating Future Carbon Price Risk, it examines how investors can integrate future carbon price risk into portfolio analysis. The Transition Pathway Initiative (TPI) is a global initiative to assess companies’ preparedness for the transition to a low-carbon economy. Over 45 investors globally, representing over £15 trillion of assets under management, support the TPI. The online tool has analyses the performance of companies and acts as a corporate climate action benchmark. The 2 degrees Investing Initiative is a think tank on climate-related metrics and policies in financial markets. It runs a Company Reports project, looking at TCFD- based scenario analysis disclosures, targeting companies in the automotive and utility sectors that form part of the IIGCC’s Climate Action 100+ activities.

The Lab has published reports covering a wide range of reporting topics. The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting transparency and integrity in business. The FRC Reports include: sets the UK Corporate Governance and Stewardship Codes and UK standards for accounting and actuarial work; monitors and takes action to promote the quality of corporate reporting; and operates independent enforcement arrangements for accountants and actuaries. As the Competent Authority for audit in the UK the FRC sets auditing and ethical standards and monitors and Reporting of performance metrics June 2018 enforces audit quality.

The reporting of performance metrics continues to be of Investors’ use of performance metrics performance, position and prospects. They rely on company significant interest to investors. Regardless of their position reporting as a base, but they also use a range of external in the investment chain, investors have strong views about During the project we heard that investors use metrics for a sources to triangulate that information, or where reporting The FRC does not accept any liability for any loss, damage or costs howsoever how companies should report their performance. It is clear range of reasons: is not provided by the company. that this issue is central to questions about how companies • analysis and valuation (benchmarking, comparing across demonstrate the value they create and how investors a sector and screening); Regulatory and market initiatives value companies. As a result of wide-ranging discussions, arising, whether directly or indirectly, whether in contract, tort or otherwise the Financial Reporting Lab (‘the Lab’) has developed a • assessing management’s credibility; The last few years has seen a number of regulatory and market initiatives regarding the reporting of performance framework and set of questions for companies and their • assessing long-term value; boards to consider when reviewing their reporting of metrics. The European Union’s Non-Financial Reporting from any action or decision taken (or not taken) as a result of any person relying stewardship; performance metrics. • Directive, the Commission’s Action Plan on Sustainable Finance, and initiatives such as the Task Force on Climate- • forecasting or assessing trends; and Investors often refer to the impact the reporting of Related Financial Disclosures, are changing the way that on or otherwise using this document or arising from any omission from it. performance metrics has on their assessment of • assessing whether management is appropriately companies are thinking about reporting on wider metrics. management credibility. The metrics chosen, how they are incentivised. reported, and whether or not the information is reported In relation to financial metrics, in October 2015, the These various uses and approaches mean investors may European Securities and Markets Association (ESMA) in a way that investors consider to be fair, balanced and be seeking different metrics, or using them in different understandable are central to this assessment. published its Guidelines on Alternative Performance ways, depending on their position in the investment chain Measures (APMs). Following its release, the Financial © The Financial Reporting Council Limited 2019 Investors want to see the metrics that management uses and the reason for assessment. For example, a sell-side Reporting Council’s Corporate Reporting Review team internally to monitor and manage performance, as these analyst may be more interested in standardised measures conducted two reviews into the use of APMs, which give insight into a company’s strategy and measure how for forecasting purposes, a governance specialist may be considered the extent to which companies were applying it is performing against that strategy. In this context, more interested in wider metrics as leading indicators the guidelines. The principles set out in this report are investors find it important to be given insight into how of long-term value, and a buy-side analyst may be more consistent with ESMA’s guidelines but provide an investor management links its metrics to its business model and interested in first assessing the performance metrics perspective on the reporting of all types of metrics strategy, including why metrics ‘make sense’ for the of an individual company at an in-depth level before (including wider metrics that are not covered by ESMA’s The Financial Reporting Council Limited is a company limited by guarantee. company and what it is trying to achieve. comparing these metrics to other companies. However, guidelines). these are only generalisations and all investors we spoke A view of performance is important for a number of to, regardless of their position in the investment chain, reasons. However, investors most often seek to understand Artificial Intelligence and corporate reporting mentioned using GAAP, non-GAAP and wider metrics how a company has performed in order to assess its future in different ways. The framework and questions for prospects. Metrics act as a signal, and performance is companies consolidate an overall investor view, but there understood in the context of the targets set, the wider will always be some difference depending on investment environment, and where the company intends to go next. style, position in the investment chain, place in the market Because of this, investors are also concerned about the and personal approach. How does it measure up? quality and sustainability of the reported performance, which helps explain why wider metrics, beyond the Investors use all information that might help them traditional financial metrics, are of increasing importance. build a picture about management and the company’s

Financial Reporting Council January 2019

Financial Reporting Council

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