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 other industry sectors, we are a multinational company whose operations are locally exposed to various types and degrees of regulatory, physical and socio-economic risks.
Climate change represents an opportunity for SGS due to our wide range of services that help our customers with mitigation and adaptation. The potential impacts of climate change are difficult to accurately predict, so the following risks and opportunities are those most tangible to our operations. We assess our risks and opportunities on a regular basis, as we monitor our sustainability projects and report to the CDP.
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With the recent adoption of the Paris Agreement, climate change laws that include legislation mandating the greater use of renewable energy are more probable. Since 2013, in anticipation of future regulation, we chose to purchase annual renewable energy certificates equivalent to our electricity consumption. We are committed through the RE100 initiative to source 100% of our electricity from renewable sources by 2020. In addition, we also develop country-specific strategies in response to regulatory changes. For example, we implemented energy reduction projects in advance of Australia’s proposed carbon pricing scheme in 2011. The “carbon tax” was subsequently repealed in 2014; however, we continue with our energy saving initiatives in the country.
The most significant physical risk to our operations from climate change is the greater incidence of extreme precipitation events, flooding and cyclones. We have 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.
Enabling our customers to tackle climate change represents a business opportunity. Carbon footprinting and supporting the eco-design of buildings and products to minimize energy consumption are just some examples of our services. Opportunities are developed by each relevant business line, and for proprietary reasons, we are not able to disclose any financial figures to indicate the scale of these opportunities.
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 as well as 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 2017, we have spent over CHF 280,000 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 2017 sustainability report). Business development in response to changing market demand is an integral part of our operating costs.