Governance Financial Statements
Strategic Report
47
Risk
Impact
Type
Timescale
Mitigation
2024 change
Energy load shedding, rationing or rapid increase in prices
Increased demand for office space, increased costs for employees and the business and a reduction in operational capabilities Reduction in operational capabilities or complete cessation of critical operations Increased scrutiny of our climate strategy and those of the wider industry, reputational damage, costly and resource intensive to defend Increased need for resources or material adaptation in our products and services to remain compliant Model risk failures if the effects (both negative and positive) of climate change are not properly factored.
Transition 10 years+ Continued monitoring of Government intention around minimum energy performance standards. Increased due diligence on third- party suppliers to assess their
New risk identified in reporting period
understanding and readiness to handle energy supply risks. Review potential, where possible, for onsite renewable electricity generation and storage at our office spaces.
Damage to server centres or other critical third-party infrastructure
Physical
10 years+ Continue to conduct annual failover and disaster recovery tests. Complete validation of the recovery capability and resilience of services from other key suppliers.
New risk identified in reporting period
Group action lawsuits directly or indirectly against the business or financial service industry
Transition 10 years+ Maintain our progress towards achieving established net zero targets.
New risk identified in reporting period
Continue engagement with industry bodies (such as the ABI), including monitoring of current and future climate change related group action lawsuits. Continue engagement with industry bodies (such as the ABI) and continuous horizon-scanning.
New climate-related regulation or legislation
Transition <5 years
New risk identified in reporting period
Mortality, Longevity and Morbidity model assumption inaccuracies
Physical, Transition
10 years+ Continue to track behavioural and health trends and, as needed, modifying assumptions and adjusting reinsurance percentages.
New risk identified in reporting period
SCENARIO TESTING ANALYSIS Since 2023, the “Divergent Net Zero” scenario has been phased out as part of the NGFS Phase IV. As a result we have adopted the NGFS “Delayed Transition” scenario as our base case, the most closely aligned replacement available. Like our previous base case scenario, this scenario is classified as “Disorderly” and represents a world with delayed near term climate action with strong policies required to limit warming below 2˚C. We use the “Current Policies” and “Net Zero 2050” scenarios as a further exploration of physical and transition risks respectively. We have taken an approach to assess the most extreme transition and physical risk scenarios to better understand the extent to which this may affect the Group. Below we provide additional information on the scenarios we have used, which directly references the descriptions found on the NGFS’ website: www.ngfs.net/ngfs-scenarios-portal/explore
NGFS SCENARIOS
ASSUMPTIONS
Delayed Transition
Delayed Transition assumes global annual emissions do not decrease until 2030. Strong policies are then needed to limit warming to below 2 °C. Negative emissions are limited. This scenario assumes new climate policies are not introduced until 2030 and the level of action differs across countries and regions based on currently implemented policies. The availability of carbon dioxide removal technologies is assumed to be low, pushing carbon prices higher than in Net Zero 2050. As a result, emissions exceed the carbon budget temporarily and decline more rapidly than in Well-below 2 °C after 2030 to ensure a 67 % chance of limiting global warming to below 2 °C. This leads to both higher transition and physical risks than the Net Zero 2050 and Below 2 °C scenarios. Net Zero 2050 limits global warming to 1.5 °C through stringent climate policies and innovation, reaching net zero CO 2 emissions around 2050.
Net Zero 2050 (“NZ2050”)
This scenario assumes that ambitious climate policies are introduced immediately. Carbon dioxide removal is used to accelerate the decarbonisation but kept to the minimum possible and broadly in line with sustainable levels of bioenergy production. Net CO 2 emissions reach zero around 2050, giving at least a 50 % chance of limiting global warming to below 1.5 °C by the end of the century, with limited overshoot (< 0.2 °C) of 1.5 °C in earlier years. Physical risks are relatively low but transition risks are high. Current Policies Current Policies assumes that only currently implemented policies are preserved, leading to higher physical risks. Emissions grow until 2080 leading to about 3 °C of warming and the severest of physical risks. This includes irreversible changes like higher sea level rise.
Powered by FlippingBook