Material climate-related operational physical risk, focused on extreme weather events, alongside risks associated with the delivery of the net zero project by 2030 and risks identified in the EMS are already addressed in our business risk registers. During 2021, businesses have started to incorporate wider climate risk within risk registers, including probability, speed and mitigation impact. This activity will progress and be supported by the development and ongoing management of sector net zero roadmaps and physical risk climate scenarios for Tier 1 critical suppliers during 2022. Climate change and environment is a principal risk for the Group (see page 112 of our 2021 Annual Report).
Environmental risks may present as financial or non-financial risks depending on the extent to which their impacts can be quantified, and how they have been classified.
The Group operates in a highly regulated environment across many jurisdictions and is subject to regulations relating to environmental factors including, but not limited to, climate change, therefore consideration of current and emerging regulation within our environmental management system is key to mitigating risk. Identified regulatory risks include energy-related taxes and the increased costs of compliance with energy-related schemes.
Understanding how the business may be impacted by relevant environmental factors is also a key component of mitigating emerging, medium- and longer-term risk. Water scarcity is an example of an environmental factor that has the potential to impact our operations, for example, if a site extracts water for process use.
Our direct environmental risks include:
- breaches of environmental requirements resulting in fines and/or the termination of permits;
- transition to a low carbon economy;
- physical risk related to extreme weather events;
- advancing technology and innovation including attracting talent;
- changes in regulatory requirements;
- social and political change, differing legislation and policy in our various markets; and
- risks associated with climate-related physical and transition risks.
Indirect environmental risk includes the impact of use of products by customers and supply chain risk.
Understanding and managing the environmental impacts of our business supports our long-term strategy of reducing the impact of our activities, supply chain and products on the environment and ensures responsible consumption of resources. Consumption of resources and materials can be different year on year, due to the differences in geography and stage of manufacture of platforms and programmes. We are taking a business-led approach to setting reduction targets and driving improvement programmes and activities to support responsible consumption. Businesses set objectives to improve the performance of their operations such as reducing energy used and the generation of waste, emissions and other discharges, such as effluents. Some of our businesses also set targets to reduce water consumption.