Climate-related risk (TCFD)
We have been on a multi-year journey to implement the recommendations set out by the Task Force on Climate-related Financial Disclosures, improving how we communicate climate-related financial information.
In-keeping with the recommendations, our TCFD disclosures can be located in the strategic report section of our Annual Report, on pages 56-58. Over the past year, we completed a climate scenario analysis, which can be found in the Annual Report.
Our CDP Climate Change response contains substantial information and analysis of our climate-related risks and opportunities, as well as their potential financial impacts. Raw data used to calculate our climate risk analysis can be found in our Sustainability Databook and our TCFD Infographic contains a neat summary of our climate change risks and opportunities.
Climate change and our circular business
Our Purpose is ‘Redefining Packaging for a Changing World’. Amongst other megatrends, climate change is a force reshaping the world, calling for rapid decarbonisation of the global economy. Consumers demand greater performance from our circular packaging solutions, which reduce emissions through reusability and recyclability. Our greatest opportunity is to meet the increasing demand for environmental performance in the design, use and disposal of our products, responding to consumer preferences that favour low-impact packaging.
The environmental performance of our packaging is driven largely by energy consumed during manufacture, which exposes the Group to regulation aimed at increasing the cost of greenhouse gas emissions (for example, carbon taxes such as the EU Emissions Trading Scheme (ETS)). There is therefore an opportunity to minimise our spend on carbon taxes by lowering our emissions through utilisation of renewable energy sources and energy efficiency measures that in turn improve the environmental performance of our product. Once deployed, our roadmap of carbon reduction investments will increase the long-term resilience of our energy supply, providing reliable, affordable and clean energy and improving the environmental performance of our packaging.
In the long term, shifts in market forces and changes in weather patterns have the potential to threaten the supply or cost of key raw materials such as recyclate, pulp and starch. There is a chance that without substantial climate action, more disruptive physical risks such as water scarcity take hold. This invites opportunities to reduce reliance on key resources through efficiency and technological measures that reduce operating costs, and increase supply chain resilience and our ability to operate under various conditions. Changing weather patterns and intense demand for water resources may pose some future water stress risk. As papermaking is a water-intensive operation, there is a chance that water stress incidents could become more common. We have implemented water stress mitigation plans at 100% of sites at risk of water stress.
How we conducted our climate scenario analysis
We applied several peer-reviewed reference scenarios to our most material risks and opportunities to consider the effect of various plausible future conditions on our business. In each scenario, we assumed that we have the same business activities that we have today and focus on a specific material risk or opportunity. We used a combination of quantitative and qualitative methods in our analysis, giving preference to quantitative information where good quality, decision-useful data is available from reputable sources. We worked with a leading climate change consultancy, who validated our climate scenario analysis findings to date and have recommended that we continue to develop this work to inform our approach to climate change. Where good quality data is available from these scenarios, we calculated the financial implications of material risks and opportunities as illustrative estimates based on present day costs and in the context given within each scenario.
- IEA SDS 1.5°C Pulp & Paper - In this scenario, growth in production and energy consumption are decoupled to achieve decarbonisation to the extent required to be on track with the Sustainable Development Scenario by 2030.
- IEA ETP SDS 2°C - In this scenario, mitigation measures are applied to carbon intensive industries, alongside technological advancements to the extent required to limit global warming to within 2°C by 2100 versus pre-industrial levels.
- IPPC RCP 8.5 6°C - In this scenario, a ‘business as usual’ state of no policy changes leads to growth in emissions, causing some of the physical effects of climate change to be felt with greater severity.
Summary of our climate scenario analysis
Whilst the climate scenario analysis suggests that there could be some financial risk to DS Smith by 2030, predominantly due to increased costs which would need to be managed, we would not have to make material changes to our business model. There are opportunities to increase the sophistication of our modelling. For example, we have not considered the financial implications of secondary impacts, for example reputational damage that may occur under some of the scenarios. Particularly as new, higher quality data becomes available (for example, better long-term projections of future raw material supply under various conditions), we will continue to use climate scenario analysis to understand the effects climate change may have on our business and ensure we have appropriate mitigations in place to remain competitive in the future environment in which we will operate.