48 | Just Group PLC | Annual Report and Accounts 2023
SUSTAINABILITY STRATEGY: TCFD DISCLOSURE FRAMEWORK continued
Our physical risk modelling estimates that they lead to at most a 0.3% reduction in property values by 2080. Of the physical risks to which we are exposed, increased flood risk due to climate change is expected to have the most material impact. Analysis suggests that our exposure to properties classed as having a high flood risk could increase steadily from 0.3% now to 0.7% by 2080 of properties backing our lifetime mortgages. Under the “Current Policies” scenario, this could mean an additional 180 properties exposed to high flood risk by 2080 out of a portfolio of 54,000 properties. Due to climate change increasing the chances of lengthy periods of drought, the projections suggest a similar pattern of increasing risk of subsidence over time. Under the most severe scenario considered, about 86 more properties could be exposed to subsidence by 2080. Analysis indicates that our exposure to properties where coastal erosion is likely would remain insignificant over the period to 2080.
COMBINED ILLUSTRATIVE IMPACTS – PRE-MANAGEMENT ACTIONS The results of our quantitative analysis of Climate Value-at-Risk (“CVaR”) relating to the Credit portfolio and Property Value at Risk (“PVaR”) relating to the Lifetime Mortgage portfolio are shown in the table below. The metrics show the illustrative impacts on our existing Credit portfolio if it were to remain unchanged to 2070. The analysis assumes no changes in the investment portfolio and does not consider the Group’s cash/cash equivalent holdings, derivatives, reinsurance assets and sovereign bonds.
DIVERGENT NET ZERO 2050
CURRENT POLICIES (HOT HOUSE WORLD)
SUB-PORTFOLIO
NET ZERO 2050
Credit portfolio 1 -10.5% CVaR -6.4% CVaR -4.3% CVaR Lifetime Mortgage portfolio -3.1% PVaR -3.1% PVaR -0.3% PVaR
1 Results as at 30 June 2023
CARBON FOOTPRINT – INVESTMENT PORTFOLIO Investment Portfolio Year Coverage
Carbon Footprint
CREDIT PORTFOLIO Overall the increase in potential impact across each scenario is primarily due to the following factors: • Underlying scenarios have been updated to reflect the NGFS scenarios available via our third party data provider MSCI. • An overall increase in the coverage across the portfolio using existing data to estimate the potential impacts primarily for illiquid/private credit assets. The modelling suggests that transition risks potentially represent a more material risk to our Credit portfolio than physical risks. In the DNZ scenario, a 1.5°C temperature rise could potentially produce higher costs due to the costs associated with the increased rate of decarbonisation under this scenario. LIFETIME MORTGAGE PORTFOLIO The modelling shows that transition risk is likely to be the most material risk. We estimate transition risk arising from the introduction of minimum EPC standards (based on assumptions stated in the Climate Biennial Exploratory Scenario). The cost of transition risk could lead to a 2.8% reduction in property values under the net zero scenarios. This reduction in property value would only affect Just in instances where it leads to the property sale price being lower than the loan balance. We have not made explicit allowance for transition risk within our reported numbers. The estimated potential impact of transition risk on property values is based on the UK government implementing a minimum EPC standard of C and this has not been confirmed as a government policy yet. Any impact would be incremental over a period of years as and when loans become repayable following the customer’s death or entry into long-term care. The impact may be mitigated by the extent to which government softens the blow for homeowners through grants and subsidies.
Credit portfolio (tCO 2 e/$m nominal invested) Lifetime Mortgage portfolio (tCO 2 e tonnes per annum)
2019
99.8%
Scope 1&2: 84 Scope 3: 407 Scope 1&2: 102 Scope 3: 275 Scope 3: 13.3***
2023*
99.2%**
2019***
n/a
2023
96%
Scope 3: 13.3
* Data as at 30 June 2023. ** Coverage of the portfolio in the carbon footprint data. Data coverage varies across individual scopes of emissions, lowest value shown for prudence. *** We have updated our approach to calculating emissions on LTMs to use a more accurate approach than prior years. To avoid using an inconsistent baseline, we have set the 2019 figure equal to the 2023 position. We believe this is a slightly prudent, but reasonable approximation. CREDIT PORTFOLIO A combination of latest available reported and estimated data has been used to calculate the carbon footprint of the portfolio using nominal values; this includes our third party data provider aiming to apply the principles under version one of the Partnership for Carbon Accounting Financials (“PCAF”) Financed Emissions Standard. For asset classes where no approach has yet been identified by PCAF, our third party data provider has applied an appropriate approach that is similar to the PCAF standard. Where data was not available an unweighted sector average was applied to produce a full portfolio footprint. Sector averages cover c.30% of the 2019 data. In 2023, scope 1 data improved significantly with c.7% of data representing sector averages and c.25% for scope 2 and scope 3. Data could be subject to change due to improvements in data quality going forward. We acknowledge there is double counting in producing the carbon footprint data and have therefore split the data by scope of emissions. It does not include cash/cash equivalents, derivatives and reinsurance assets.
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