TCFD Statement continued
Recommendation
Commentary
Strategy Climate-related risks and opportunities identified over the short, medium and long-term
Through conducting a rigorous climate risk assessment, outlined under Risk Management below, we have accurately identified the potential climate risks and opportunities facing our business. The table below outlines the key physical and transition risks we have identified over the short-term (2020-2029), medium-term (2030-3039) and long-term (>2040). Our heightened understanding of our climate risks has enabled us to employ a robust risk management process to address possible impacts and we will be working to improve this process further over the next year.
Time horizon Risk
Risk description
Risk impacts
Changes in occupier/market demand
As markets shift towards low carbon alternatives, climate resilient assets could achieve a ‘green premium’ by outperforming buildings that do not meet a higher sustainability standard. Failure to adapt could create competitive risk and tenant default risk. Policy mandates buildings and developments to adhere to higher standards, to improve efficiencies and operational practice, and to embed climate resilience on-site. Non-compliant assets could experience reputational risk and reduced occupier demand. Financial market impacts could transpire as market preferences shift towards low carbon solutions and climate resilience, or as a result of physical climate risks causing macroeconomic impacts. Market shifts could affect our ability to secure financial capital, acquisition activities and asset values. Increasing the share of renewable energy sources and decarbonising energy-intensive industries could intensify other transition risks associated with reputation damage, financial impacts and litigation risk. Some of our assets are exposed to fluvial and pluvial flooding risk, while our susceptibility to coastal flooding is limited. This encompasses risks associated with disruption and damage that could lead to high repair costs or stranded asset risk. Rising temperatures and extreme temperature highs puts pressure on both our assets and people. Our concentration of assets in Southern England increases our susceptibility to this risk and to associated costs, including premature material replacement and increased cooling costs. Extreme weather events, including storms, heavy winds, heavy precipitation, drought and snow could become more frequent and severe, generating risks associated with asset damage, regional infrastructure disruption, stranded asset risk and high capital expenditure costs to reinforce building design. Water becomes increasingly scarce, with supply unable to meet demand. As temperatures rise, average drought lengths could increase, with implications on water costs, supply chains and public health.
‒ Reduced asset values, ‘green premium’ vs ‘brown discount’ ‒ Increased cost of financial capital ‒ Occupier default risk causing loss of income ‒ Increased capital expenditure and retrofit costs ‒ Increased operational costs, including impacts from increased cost of carbon
Increased building standards/ requirements
Short- term: 2020- 2029
Financial market impacts
Decarbonisation and increased energy demand/ cost
Flooding
Medium- term: 2030- 2039
‒ Physical damage causing costly repairs and clean-up ‒ Cost of mitigation measures ‒ Migration away from vulnerable areas ‒ Decline in asset values or stranded asset risk ‒ Litigation or reputational risks if perceived to inadequately prepare for physical risks ‒ Supply chain, distribution and regional infrastructure disruption
Heat stress
Extreme weather events
Drought and water stress
Long- term: 2040- 2049
Additionally, key opportunities we have identified include: ‒ The opportunity to secure occupiers, increase asset values and enhance our reputation by investing in renewables, harnessing low carbon technologies and providing energy efficient buildings. This includes the opportunities we expect to realise as we implement our net zero carbon pathway. ‒ Embedding resilience in our assets and business strategy by proactively assessing and managing identified climate-related risks, gaining a competitive advantage and securing our long-term sustainability as a result.
Picton Property Income Limited Annual Report 2022
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