Risks and Opportunities Associated with Climate Change
GRI Content: G4-2, G4-EC2
Evaluating and managing risks associated with climate change remain priorities for SGS. While our business operations may not be as energy intensive and resource depleting as some industry sectors, as a multinational company our operations are locally exposed to various types and degrees of regulatory, physical and socio-economic risks.
Through our wide range of services, climate change represents an opportunity for SGS, as we help our customers with climate change mitigation and adaptation. Due to the nature of climate change, the potential impacts are difficult to accurately predict. The following risks and opportunities are those which are the most tangible to our operations and are assessed on a regular basis as we monitor our sustainability projects and report to the CDP.
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Climate change laws, including legislation mandating the greater use of renewable energy, are made more probable with the recent adoption of the Paris Agreement. Anticipating future regulation, SGS has, since 2013, chosen to purchase annual renewable energy certificates equivalent to our electricity consumption. We are also committed through the RE100 initiative to source 100% of our electricity from renewable sources by 2020.
We also develop country-specific strategies in response to regulatory changes. For example, in Australia, we implemented energy reduction projects in advance of the country’s carbon pricing scheme in 2011. While the “carbon tax” was repealed in 2014, we continue with our energy saving initiatives in Australia.
We believe that a greater incidence of extreme precipitation events, flooding and cyclones is the most significant physical risk to SGS from climate change. SGS has developed business continuity guidelines, which include planning for natural disasters. Costs relating to the management of such issues are linked to establishing contingency plans and systems, increases in insurance premiums and potential loss of revenue from business interruption.
Helping our customers to tackle climate change represents a business opportunity for SGS. Examples of our services include carbon foot printing and supporting the eco-design of buildings and products to minimize energy consumption. These opportunities are developed by each relevant business line. For proprietary reasons, we are not able to disclose any financial figures to indicate the scale of these opportunities. (See our Sustainability Services section in our Sustainability Report.)
Risks and Opportunities Posed by Climate Change That Have the Potential to Generate Substantive Changes in Operations, Revenue or Expenditure
Description of risk Associated impact Financial implication Mitigation Cost of mitigation Regulatory The implementation of fuel or energy taxes or higher carbon taxes could lead to higher energy and fuel prices An increase in global vehicle and non-transport fuel pricing would impact overheads (e.g. fuel and electricity costs, carbon tax) Energy and fuel efficiency projects of our affiliates include our Energy Efficiency in Buildings (EEB) program, the SGS Vehicle Fuel Emissions policy, sustainable driving practices and in-vehicle monitoring systems, and our Do More With Less campaign.
We have committed to ambitious targets to limit CO2 emissions from fleets by 2020. In addition, SGS is a signatory to the WBCSD Energy Efficiency in Buildings (EEB) Manifesto. Under this manifesto, we have committed to a 20% reduction in CO2 emissions for all offices and laboratories we own (by full-time equivalent headcount and by unit of revenue). Progress against our EEB targets is tracked via the SGS Energy Rating Tool for Offices and Laboratories, and reported to the WBCSD.
We have estimated the management time associated with our EEB program. We also have calculated the cost of transitioning our vehicle fleet to lower emissions vehicles. However, this information is not reported due to commercial sensitivity. Mandatory use of renewable energy The implementation of climate legislation linked to renewable energy use could lead to an increase in energy prices An increase in electricity pricing would impact our overhead spend In December 2014, SGS became one of the first companies in the world to sign the RE100 initiative, pledging to use 100% energy from renewable sources. We purchase annual renewable energy certificates equivalent to our energy consumption. In 2016 we have spent 272 843 CHF in renewable energies. Extreme precipitation,flooding, cyclones Potential loss of business continuity and revenue; increased insurance premiums in high risk areas Loss of revenue and increased insurance premiums Contingency planning is an integral part of risk management.
SGS has developed an individual site for business continuity plans
The financial impact will depend on the severity of events. Based on our experience, we estimate that the forced shutdown of offices and laboratories due to flooding would equate to CHF 200,000 per annum. Extreme temperature rises leading to drought and adverse weather patterns, such as cyclones, hurricanes and typhoons; and extreme alterations in biodiversity (e.g. bee population) Changes in mean temperatures would require increased cooling facilities in some locations and increased heating in others. Our operating costs would be impacted by an increase in electricity consumption. Additionally, crop decline would lead to loss of revenue for our customers, inflated pricing, and the loss of revenue for the SGS/TIC industry for services linked to crop testing and certification Increase in overheads from the need for additional cooling and heating methods. Loss of revenue from market changes linked to crop shortages and higher commodity prices. SGS provides services linked to grain testing, crop monitoring, precision farming and precision irrigation An increase in consumption of 5% would inflate our operating costs, with additional costs arising from higher management costs (e.g. business contingency planning) as well as increased insurance premiums. We would also expect a potential loss of revenue from our services. Services linked to climate change, e.g. carbon foot printing, energy efficiency of buildings and products Increased demand for services linked to climate management leading to increased revenues Increased revenues and opportunity to cross-sell across business lines and geographies Our lines of business are continually adapting to the sustainability needs of our clients (See our Sustainability Services section of our 2016 sustainability report) Business development in response to changing market demand is an integral part of our operating costs