Physical risks arise from the physical effects of climate change. Acute extreme weather conditions, for instance, have an impact on our operations, which will lessen the closer we get to net zero. This risk has a short- to medium-term timeline, with a net zero scenario reducing the chance of extreme heat and related issues and costs. This results in a low-risk assessment.
Chronic changes in weather patterns and the environment constitute medium-term risks. This particular risk affects more parts of our organisation, as it impacts both our operations and our supply chain. Hotter summers would be an example, that might see us change our delivery times to cooler times in the day. Rising sea water levels increase the danger of flooding and threaten the continuity of locations, the assumption being that this risk is less extreme in the net zero scenario.
Transition risks arise from changes in strategy, policies or investment, as society transitions from a fossil fuels-based to a climate-neutral economy. Four types of risk are at play: legal and regulatory, economic, technological and reputational risks. Tighter laws and regulations could materialise
in the short and medium term, and take such shapes as carbon emission taxes or the introduction of emission-free areas. Achieving the net zero scenario will require relevant policies, and this particular risk can therefore be considered high. In the medium term, economic risks may arise, possibly resulting in less access to capital if investors reckon the transition is not proceeding fast enough, lower credit ratings and higher energy costs.
A third risk pertains to technology. This entails growing pressure to make buildings more energy-efficient and run vehicles entirely on renewable fuels or electricity. Technology constitutes a medium-term risk, as customers may expect an accelerated drive towards neutral emissions. Inadequate success could increase the risk of losing customers.
All of these risks relate to climate change, as it is certain that the climate is changing. We are taking measures to adapt, for instance by improving labour conditions in such areas as health and transport schedules – part of business continuity management. Another example is the location of existing and new buildings, the risks of which we have investigated. When building new sorting centres we draw on BREEAM building requirements to address the risks as far as possible.