Climate Risk Assessment at DS Smith
There is increasing scrutiny on the way businesses manage their climate change related risks. Investors, consumers and B2B customers want to know what companies are doing to prepare for long-term challenges and to manage emerging risks. Accordingly, DS Smith have been working to identify, assess and manage climate-related risks to the company.
In the last year, our Core Sustainability Team have assessed the materiality of various climate risks, based on a list of climate risks identified by the Taskforce on Climate-related Financial Disclosure (TCFD). These risks can be broadly divided into two categories: physical risks (e.g. flooding and changing weather patterns) and transition risks (e.g. market trends and regulation). The governance of these risk categories sits with different Group functions, and both have avenues for escalation to senior management if risks are determined to be substantial.
Physical risks which are material to our business are assessed as part of our Group risk function’s emerging risk assessments with support from our insurance partners FM Global, one of the world’s largest commercial property insurers, who provide us with data and analysis. These risks are considered for escalation to the company’s principal risk list, which is reported regularly to the Board. Although this year no climate-related risks have been escalated, the assessment of these risks is being reviewed on a regular basis and the governance of these risks is in line with the Group’s overall risk process. One emerging physical risk that we have identified is the potential changes in water availability due to changing weather patterns, which could impact some of our water-reliant operations. This risk is being managed through the creation of water stress management plans for sites in water stressed locations.
Transition risks are assessed and managed by the Core Sustainability Team. This year we have focused on materiality analysis and qualitative risk assessment. The initial results of our analysis have identified carbon emissions and customer preferences as the most material climate-related transition risks, with carbon emissions being the most impactful for our business. The price of carbon allowance from the EU Emissions Trading Scheme is projected to rise in the coming years, so the financial impact of this risk qualifies it as significant to our business. We have various projects underway to mitigate our exposure to carbon emissions risk, such as installing LED lighting and certifying all our sites to the ISO 50001 energy efficiency standard. The energy efficiency projects we are conducting also represent a significant cost saving opportunity for the company. In time we will quantify the effectiveness of these projects, report against them, and assess their impact on our risk exposure and finances.
Next year we aim to conduct a rigorous quantitative assessment of the financial impact of transition risks and begin reporting the outputs of this analysis. We have also planned and resourced a project to conduct climate scenario analysis, in line with the recommendations of the TCFD.