GovernanceDisclose the organisation's governance around climate-related risks and opportunities Leadership
Implementation
Risk
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StrategyDisclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning where such information is material Leadership
Implementation
Risk
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Risk managementDisclose how the organisation identifies, assesses and manages climate-related risks Leadership
Implementation
Risk
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Metrics & targetsDisclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material Leadership
Implementation
Risk
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Out-Law / Your Daily Need-To-Know
Materials and equipment suppliers preparing to implement the requirements of the Taskforce on Climate-related Financial Disclosures (TCFD) will be at different stages on their reporting journey.
Our maturity matrix will enable these businesses to understand the maturity of their current climate risk practices; benchmark how they perform against peers and best practice; and identify the gaps they will need to address as they improve and develop their disclosures through the annual reporting cycle.
We have categorised suppliers as 'beginner' (limited disclosure), 'intermediate' (moderate disclosure) and 'leader' (full disclosure) for the purposes of this guide. Similar guides are available for asset owners, consultants and contractors.
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Beginner: thinking about the issue
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Intermediate: planning, organising, getting ready for action
Governance
Disclose the organisation's governance around climate-related risks and opportunities
Leadership
- Board to have strategic responsibility for climate risk and ESG matters, to be implemented through the executive function.
- Set up structures to enable board to have capacity and competence on climate-related risks and opportunities, including the use of expert committees or through a named individual appointed to the board who has previous experience on climate change risk management.
- Climate-related risks are listed on the risk register and subject to wider risk management and audit procedures.
- Consideration given to how effective 'bottom up' implementation of 'top down' climate strategy will be prioritised and achieved in practice, in an integrated way, working across functions.
Implementation
- Plan and design comprehensive governance structures and priority systems to enable implementation of all elements of strategy across all functions and geographies including risk management, technology and innovation, carbon abatement and carbon pricing.
- Invest in competence and capacity within the executive team to ensure effective leadership and responsibility for enterprise, sustainability and innovation, to drive the innovation agenda and enterprise strategy around providing sustainable solutions for customers.
Risk
- List climate change as a principal risk in the risk register.
- Develop a governance system to manage climate-related risks and to ensure clear consideration of physical, transition and liability risks.
Strategy
Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning where such information is material
Leadership
- Identify short, medium and long term priorities, plans and activities identified to reduce the impact of climate-related risks and leverage the opportunity for climate-related opportunities and drive executive function to deliver this across the business.
- Participate in collaborative industry programmes to support innovation and green capacity in relevant materials markets.
- Set specific targets to increase recycling and reuse of materials across supply chain processes.
Implementation
- Implement short-term activities including:
- incentivisation to participate in industrial level recycling/reuse programmes;
- waste charges/tariffs as disincentives;
- increased renewable activity;
- improvement of raw materials, directly or through key supply chain members' activities as relevant;
- carbon pricing;
- investment and research into use of new technologies and methodologies.
- Identify plan for achieving medium-term activities including:
- improving capacity for industrial level recycling/reuse programmes;
- transitioning from fossil fuel to renewable energy in manufacturing processes, including supply chain;
- piloting new technologies including greener processes, materials and energy supply sources for process plants as relevant.
- Ongoing education of global professional teams on their environmental impact and how to improve professional and personal sustainability, at home and in the workplace.
- Ongoing engagement and interaction (through research, investment, education, support and activities) for global manufacturing and logistics teams on best practice methodologies and performance measurement for improving efficiencies and lowering emissions within end to end processes.
- Undergo assurance for data and disclosures across sustainability programme, enhancing the integrity, quality and usefulness of the information provided.
Risk
- Quantify the short, medium and long-term priorities, plans and activities identified to reduce the impact of climate-related risks and leverage the opportunity for climate-related opportunities and consider how they will impact the businesses, strategy, and financial planning.
Risk management
Disclose how the organisation identifies, assesses and manages climate-related risks
Leadership
- Review climate-related risks and identify such risks on the risk register.
- Collaborate with the wider industry to collectively plan for the response to climate-related risks - in particular, to enable greater mobilisation on innovation in technology and investment in green capacity.
- Focus on energy efficient solutions, promote use of lower carbon materials and assist clients in understanding the balance between, for example, insulation performance and embodied carbon and reducing emissions from their own operations.
Implementation
- Identify risks through a number of different forums such as risk workshops, risk champion forums and engagement with senior leaders and other stakeholders.
- Develop a supplier company-wide integrated enterprise risk management (ERM) process for managing climate-related risks, combining a bottom-up operational review with a top-down strategic review and external perspectives to ensure comprehensive risk identification.
- Begin to develop and implement appropriate risk management strategies for dealing with identified transition risks.
- Develop processes for the supplier to manage climate-related physical risks across its operating locations and with its major supply chain.
- Executive leadership team is supported by risk champions across the business, who are tasked with maintaining awareness of key risks and control measures.
Risk
- Commission a robust and holistic third-party assessment of potential climate-related risks and opportunities and estimate the likely impact of the risks on the organisation's strategy and financial planning. This assessment should be broad and include internal stakeholder consultation, literature review, peer comparison and scenario analysis.
- Categorise risks into potential and current risk and identify controls and mitigation.
- Identify and assess climate-related physical risks across the organisation’s key operating locations and affecting the major supply chains.
- Identify key transition risks with potential to financially impact the business.
- Transition risk assessment includes increased unit costs within Emissions Trading Systems (both UK and EU) and a reduction in free allocation of CO2 allowances under those schemes.
- Analyse and disclose investment required for making greener materials without which may lead to higher carbon taxes and potentially a reduction in orders from consumers wanting a greener solution.
Metrics & targets
Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material
Leadership
- Measure and report on Scope 1, 2 and 3 GHG emissions and the related risks.
- Commit to reducing GHG emissions to net zero by 2050 and develop and publish quantified targets to reduce GHG emissions in relative or absolute terms (Scopes 1, 2 and/or 3) and report on performance against these.
- Become a member of relevant 'green indexes' such as ESG indexes, FTSE4Good Index, the STOXX Global ESG Leaders Index and the Dow Jones Sustainability Index.
- Participate in relevant geographic campaigns applicable to the global footprint of the manufacturing supply chain and relevant materials, committing to the significant reduction of Scope 1, 2 and 3 emissions by 2030 (against a 2019 baseline).
Implementation
- Use the best industry guidelines available for the monitoring and reporting of CO2 that apply to the manufacturing processes relevant to the supplier's operations.
- Calculate CO2 emissions from other activities using appropriate emission factors and in line with the World Resources Institute Greenhouse Gas Protocol (Revised Edition).
- Calculate Scope 2 emissions from electricity in line with the location-based method of the 2015 World Resources Institute Greenhouse Gas Protocol Scope 2 Guidance, using International Energy Agency (2021) Emissions Factors (published in 2021) and eGRID2019 Summary Table for emissions factors (published in 2020) or any other best practice methodology for calculation of emissions from electricity.
- Calculate Scope 3 emissions estimations in line with the GHG Protocol's Scope 3 Standard and the relevant GHG Protocol's Scope 3 Standard for companies supplying materials provided by the supplier (eg cement, timber and concrete), using the UK government 'GHG conversion factors for company reporting 2021' and other relevant emissions categories for the supplier’s operational activities.
- Use best industry practice tools to access life cycle assessment data and to verify Environmental Product Declarations (EPDs) for products being supplied by the supplier.
- Obtain independent verification of the calculation of 2021 GHG emissions assertion, in accordance with industry recognised standard ISO 14064-3.
- Engage with external Scope 3 reporting experts to support the development of a reporting methodology and to establish a Scope 3 baseline and collect Scope 3 emissions related data across all geographical operating regions within the supplier’s supply chain.
- Obtain data from a wide variety of sources including capital investment data, green capex forecasts, EU taxonomy KPIs, greenhouse gas emissions, climate change science data, costs of exceptional physical events, network reliability, climate transition pathways and customer feedback.
- Develop and employ measurement methodologies in line with recognised guidance appropriate to the supplier’s business.
Risk
- Reporting metrics to include climate-related risks and opportunities associated with water, energy, land use, and waste management.
- Access data and research across geographies relevant to the supplier’s operations to develop methodology and approach for assessing climate resilience across the supplier’s business.
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Leader: doing, making a difference
Governance
Disclose the organisation's governance around climate-related risks and opportunities
Leadership
- Climate action is an integral part of business strategy and risk management, driven by the board, with implementation through an organisation-wide governance structure.
- The board has capacity and competence (through the use of board committees or similar arrangements) to respond to climate-related risks and opportunities effectively (including connected issues of technology and innovation), involving senior members of the board and executive function. This enables the board members to set the organisation’s climate strategy, including targets and periodic progress reviews.
- The risk management and audit committee reviews group level climate-related risks periodically.
- The organisation acts as a positive agent for regulatory and policy change, playing an active role in environmental policy development forums, assisting the government in its rationale and responding on any policy consultations.
- Board and management are committed to transparency on climate lobbying activities, both in respect of direct advocacy and indirect representation via trade associations; and ensure alignment between those practices and expectations of the board and shareholders.
Implementation
- Cross-functional teams including members from across the supplier’s functional groups work collaboratively on the detailed delivery of the climate strategy and to review implementation of projects.
- The supplier has established governance structures focussed on carbon abatement across its projects and has developed systems for prioritisation of climate projects, carbon pricing and benefits, and reviewing implementation of projects.
- Remuneration and financial incentives for executives are linked to progress towards achieving short, medium and long-term climate targets.
Risk
- Have a system in place for internal controls, to ensure any emerging risks and uncertainties are taken into account in the company’s accounting judgments, disclosures, processes, audit and financial statements.
Strategy
Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning where such information is material
Leadership
- Obtain verification by the Science Based Targets initiative (SBTi).
- Describe and publish the resilience of the supplier’s strategy to deal with different climate-related scenarios, including a 2°C or lower scenario.
- Provide extensive data on performance through public submissions to Climate Disclosure Project (CDP), and any other ESG disclosures, to investors. This will include data on climate change, as well as both water and supply chain management.
- Lead and support technology pilots for use of hydrogen, carbon capture and storage in manufacturing process.
- Be a role model for others through vocal advocacy for action on climate change and collaboration with peers and other stakeholders to achieve change.
- Transparent disclosure of direct and indirect CO2 emissions and energy use by source.
Implementation
- Progress short-term activities on a high priority and consistent basis and have short-term activities updated regularly to maintain focus and ensure progress.
- Implement plans for and invest in the progression of medium-term activities on a high-priority and consistent basis and have medium-term activities updated regularly to maintain focus and ensure progress.
- Plan for achieving long-term deep decarbonisation of the end to end business to ensure ability to operate in a net zero operating environment including, as appropriate, (a) advanced materials and green methodologies (b) use of hydrogen and carbon capture technology. Use this to update short and medium-term priorities on an ongoing basis.
- Transitioned to wholly renewable power sources and low emission HGV vehicle fleet.
- Identify and start to implement specific mitigation measures required to deal with climate risk and opportunities and to strengthen resilience across key operating locations.
- Support action plan to strengthen climate resilience at asset level including design strengthening at key locations.
- Support the circular economy, as appropriate to the business, through investment in plants and processes which enable higher levels of recycled materials to be used.
- Use an internal carbon price in relevant capital expenditure approval and strategic planning processes, with the aim of directing investments towards efficiency, optimisation and lower-carbon solutions.
- Invest in research, development and testing of more sustainable manufacturing methodologies and green materials.
- Engage, support and incentivise supply chain to make significant carbon reductions through a sustainable procurement programme.
- Have a dedicated team focusing on the ongoing reduction of environmental impact of the business and its assets and not just the reduction to net zero.
Risk
- Update and maintain the short, medium and long-term priorities, plans and activities identified to deal with climate-related risks and opportunities.
- Integrate scenario analysis outcomes into process for updating investment strategy and business plan and test resilience of investments and portfolios to cope with selected scenarios.
- Identify the financial investment that the business is going to make in managing climate-related risks and opportunities over the short, medium and long-term.
Risk management
Disclose how the organisation identifies, assesses and manages climate-related risks
Leadership
- Ensure all climate-related risks are registered on the risk register, updated on an ongoing basis and fully integrated into the organisation’s overall risk management and governance processes.
- Consider transition risks and ensure that they are factored fully and consistently into future financial long-term forecasts for those areas of the balance sheet whose recoverability is assessed based on expected future cash flows, including property, plant and equipment, expansion assets in the course of construction, intangible assets, investment properties and deferred tax assets.
- Consider the potential impact of different scenarios, including a 4°C, a 2°C, and a 1.5°C scenario, on the organisation’s businesses, strategy, and financial planning (qualitative and quantitative).
Implementation
- Introduce climate component to procurement processes with pre-acquisition due diligence and in vendor reports prior to exit.
- Implement ERM process for managing climate-related risks on an ongoing basis across the supplier's operations, including through the training of staff and the integration of early warning indicators and mitigation strategies into risk management governance procedures.
- Outline in strategy plans, all-risk management actions and an execution plan for each of the identified risks.
- As appropriate to key markets, pass cost of carbon taxes to customers in the form of an additional surcharge which will be adjusted when carbon costs change, driving awareness and action in the value chain towards innovation and investments in a decarbonised future.
Risk
- Identify ongoing approach for measuring how climate-related risks are prioritised using risk assessment tools.
- Complete risk analysis and continue to monitor specific climate change at key operating locations (covering major upstream sites, manufacturing facilities and ports), using globally accepted climate change scenarios.
- Complete risk analysis and continue to monitor transition risks impacting the business (including capacity for green materials, impact of carbon pricing on profitability, risk of increased regulation and potential for non-compliance with net zero carbon operating environment).
- Identify climate change induced physical risks in the form of supply chain disruption including potential delays due to adverse weather conditions as well as capital project delays including unplanned costs and loss of production.
- Assess financial impact of executing actions for addressing climate-related risks as identified in strategy over time horizons that allow for appropriate financial planning.
Metrics & targets
Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material
Leadership
- Adhere to the United Nations Science Based Targets initiative and follow guidance from Intergovernmental Panel on Climate Change (IPCC).
- Utilise metrics to assess climate-related risks and opportunities in line with the organisation’s strategy and risk management process.
- Refine and update appropriate targets to manage climate-related risks and opportunities, including use of science-based targets, which take account of the specific profile of the supplier’s business and refine and update a methodology to monitor performance against these targets.
- Become an approved Environmental Product Declaration (EPD) programme operator, with the ability to create product-specific EPDs that comply with relevant international standards.
Implementation
- Assign likelihood, impact, and velocity scores for each of the identified risks, including scenario planning.
- Provide assurance of reported GHG emissions against International Standards on Assurance Engagements.
- Implement ISO 14001-certified Environmental Management System and Environmental Sustainability Standard.
- Measure and report in accordance with the World Resources Institute and World Business Council on Sustainable Development Greenhouse Gas Protocol.
- Ensure regular verification of methodology for measurement of emissions against relevant best industry standards applying to all aspects of business.
- 100% of Scope 1, 2 and 3 emissions independently assured against ISAE 3410 Assurance Engagements on Greenhouse Gas Statements.
- Collect and report data complying with the UK government’s Streamlined Energy and Carbon Reporting (SECR) requirements, or other relevant best industry reporting standard(s) relevant to the business.
- Implement systems to enable supplier’s global supply chain to track, collect and share emissions data.
Risk
- Research, monitor and analyse the financial impact of climate risks, including water risk, on the supplier’s own manufacturing processes and those of its global supply chain.
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