Governance
Our Board oversees, through the Environmental, Social and Governance Committee, our approach to sustainability, including climate change. The Committee ensures that appropriate climate change and environmental programmes are in place and incentives are set as required to reduce the Group’s environmental impact.
Our Executive Committee receives regular updates and briefings on our net zero agenda and during 2021 were set bonus-related objectives (see page 152 of the Annual remuneration report in our Annual Report 2021) to support our progress in net zero, including supporting development of sector net zero roadmaps.
Day to day responsibility for environmental issues including climate-related issues sits with our Group ESG, Culture and Business Transformation Director.
Our Operational Framework provides a robust governance structure, policies and processes that manage climate-related issues wherever we operate.
See our Annual Report 2021:
Page 24 – The work of the Board – climate change
Page 42 – Embedding climate considerations into how we do business
Page 43 – Our net zero programme
Page 118 – Operational framework
Page 134 – Environmental, Social and Governance Committee report
Page 139 – Remuneration Committee report
Page 24 – The work of the Board – climate change
Page 42 – Embedding climate considerations into how we do business
Page 43 – Our net zero programme
Page 118 – Operational framework
Page 134 – Environmental, Social and Governance Committee report
Page 139 – Remuneration Committee report
Strategy
During 2021, the Group revised its strategic framework to include ‘advance and integrate our sustainability agenda’, which includes our response to climate change and our net zero programme to reflect our commitment to sustainability.
In response to climate change we are developing and implementing a long-term strategy to progress our ambition of net zero greenhouse gas emissions across our operations and value chain. This strategy, which is aligned to the Paris Agreement, is intended to ensure that our business is resilient to climate-related risks and opportunities.
During 2021, we further developed our understanding of the climate-related risks and opportunities with the potential to impact BAE Systems’ business model and strategy. We are now progressing quantification of material risk and opportunities against identified scenarios. Further work is planned for 2022 to enable us to develop our views in relation to the resilience of our strategy.
Our strategy starts with emissions reductions, for example improving energy efficiency and introducing cleaner technologies, and also includes purchasing renewable energy and collaborating across our value chain.
We also intend to continue to take into account opportunities associated with climate change, including the ways in which we can use our advanced engineering capabilities and world-class technologies to develop new products and services that support low carbon or reduced emissions requirements.
See our Annual Report 2021:
Page 14 – Strategic framework
Page 38 – Scenario planning
Page 43 – Our net zero programme
Page 14 – Strategic framework
Page 38 – Scenario planning
Page 43 – Our net zero programme
Risk Management
Our approach to identifying, assessing and managing environmental risks, including climate-related risk, is embedded within our approach to risk management. 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.
Climate change and environment is a principal risk for the Group.
See our Annual Report 2021:
Page 38 – Scenario planning
Page 43 – Climate and environmental risk management
Page 104 – How we manage risk
Page 107 – Our principal risks
Page 134 – Environmental, social and Governance Committee report
Page 38 – Scenario planning
Page 43 – Climate and environmental risk management
Page 104 – How we manage risk
Page 107 – Our principal risks
Page 134 – Environmental, social and Governance Committee report
Metrics and targets
Many of the climate related risks and opportunities we face are related to the transition to a low carbon economy. The adoption of our net zero action plan is a key part of addressing these risks. Accordingly the key metric we are currently using to assess these risks is our greenhouse gas emissions data.
We report greenhouse gas Scope 1, 2 and 3 (employee business travel only) emissions in line with the Streamlined Energy and Carbon Reporting (SECR) regulations. We also report data on electricity, waste and water.
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.
We aim to reduce our emissions as a minimum in line with the 1.5°C pathway by achieving net zero greenhouse gas emissions across our operations (Scope 1 and 2) by 2030 and by implementing the actions set out in our net zero roadmaps for the relevant businesses, and working towards a net zero value chain by 2050.
We have joined the UN Race to Zero via the Business Ambition for 1.5°C campaign.
Our UK business intends to submit net zero milestones for the Science Based Targets initiative during 2022. We will look to extend this to other parts of the Group as we mature the development of our net zero roadmap and our related internal processes.
See our Annual Report 2021:
Page 43 – Our net zero programme
Page 45 – 2021 key environment data
Page 47 – Greenhouse gas emissions data
Page 43 – Our net zero programme
Page 45 – 2021 key environment data
Page 47 – Greenhouse gas emissions data
We welcome the development of the Task Force on Climate-related Financial Disclosures (TCFD) recommendations and recognise climate change as one of the biggest threats the world faces, and one which poses particular challenges to our business. Supporting a low carbon transition will enhance our business resilience by providing new opportunities.
Climate change and nature-related risks and opportunities extend beyond normal business strategic planning cycles. Climate change and nature-related risks have the potential to impact BAE Systems over short- (less than two years), medium- (three to ten years) and long-term (beyond ten years) time horizons.
To better understand how the potential long-term impacts of climate change could impact our business, in line with the TCFD recommendations, this year we have begun the process of climate change scenario analysis. We have conducted qualitative climate change risk and opportunity hotspot mapping with representatives from across our business to obtain a better understanding of the climate issues that could impact the business in the future.
We identified the climate-related risks and opportunities with the potential to impact BAE Systems’ business model and strategy by developing high level impact pathways to demonstrate the causal links between the risk and opportunity drivers and the expected impacts based on likelihood of occurrence and the potential to impact the Group in terms of costs, revenue and asset value.
We are exposed to a number of risks associated with a shift to a low carbon economy, the most material of these risks over the medium to long term the cost of substituting existing products and services with lower emissions options and disposal of legacy assets. Associated with this are potential risks around our ability to attract talent and retain future talent.
While we recognise these risks, the opportunity around the transition is also significant for BAE Systems over the medium to long term. There is an opportunity for us to play a key role in enabling the low carbon transition through our development of innovative new technologies. There is growing demand, and therefore revenue streams, for low emissions products and services from new and existing customers, including in adjacent sectors.
Beyond transition aspects, we also recognise the risks arising from physical changes in climate, in particular the potential impacts of extreme weather events impacting our operational sites and equipment where we operate around the world, as well as risks to our suppliers. We are already taking action around extreme weather events using analytical tools to apply natural catastrophe classifications to each of our sites worldwide. In 2020, we conducted a refresh of this data and during 2021 we modelled climate scenarios for 2030, 2050 and 2085, which gives us a portfolio-level understanding of the Group’s exposure to natural hazards, both current and future.
We have prioritised sites requiring hazard-specific surveys, which will lead to the identification and implementation of risk improvement recommendations, which may include investment to improve facilities, for locations not previously assessed. We are also modelling climate scenarios for Tier 1 critical suppliers.
We have conducted a qualitative review into the scenario attributes of orderly (below 2°C), disorderly (approximately 2°C) transition scenarios and a business as usual (greater than 4°C) scenario considering peer-reviewed, publicly available third party scenarios, including the International Energy Agency (IEA), Network for Greening the Financial System (NGFS) and the IPCC’s Representative Concentration Pathways.
We have reviewed these qualitative scenarios along with the material risks and opportunities identified. We have significant experience in managing our exposure to physical risks and our strategy to manage those risks already takes into account different climate change scenarios. From the data we already have available we have a good view as to which of our assets are at most risk thereby enabling us to address those risks.
In relation to the transition risks, we have incorporated the future sustainability of our operations and the further development of our net zero road map into our strategy. Our work to date in relation to net zero has focused on a 1.5°C pathway and based on current information we believe our strategy is sufficiently resilient to respond to transition risks associated with that scenario. We have started to progress quantitative climate change scenario analysis which will enable us to enhance the maturity of our views in this regard.
