Overall responsibility for climate risk identification, analysis, evaluation and mitigation rests with the line management of the businesses. Environmental risks are identified by the businesses through their environmental management systems. Key risks are escalated, through the risk management process, to the Board who has overall responsibility for determining the nature and extent of the risk it is willing to take, ensuring that risks are managed effectively across the Group. Oversight of specific risk management activities lies with the Audit and Corporate Responsibility Committees.
In addition, every six months, each business completes an Operational Assurance Statement. This provides a self-assessment of compliance with our Operational Framework, and a report showing the key financial and non-financial risks for the relevant business. These risks are collated and reviewed by the Executive Committee to identify those issues where the cumulative risk, or possible reputational impacts, could be significant.
Our risks and opportunities
On a short-term basis, an inherent risk for our business, driven by changes in regulation, is carbon taxes, particularly the Climate Change Levy which applies to our UK operations. Although the magnitude of this risk has been assessed to be relatively low, it will have a direct impact on our operational costs.
Within BAE Systems, due to the long lifecycle of our products, we have to be aware of the long-term risks to our business and products, inclusive of environmental factors. One key long-term risk that we have identified relates to changing climate and weather extremes. Extreme weather events, primarily flood risks, have the potential to directly impact our operations and, in turn, project schedules.
Other direct environmental risks include:
- Breaches of environmental requirements resulting in fines and/or the termination of permits;
- Advancing technology and innovation;
- Changes in regulatory requirements; and
- Social and political change, differing legislation and policy in our various markets.
We also take account of the opportunities associated with climate change and these include ways in which we can use our advanced engineering capabilities to develop new products and services that support low carbon or reduced emissions requirements. An example of this is the development of selective catalytic reduction technologies and hybrid propulsion systems.