TCFD Statement continued
Recommendation
Commentary
Risk management Describe the organisation’s processes for identifying and assessing climate-related risks
We are acutely aware that climate change poses a threat to not only our business and sector but to the global economy. In recognition, in early 2022 we conducted two parallel, rigorous climate scenario analysis exercises, the first to model climate risks to our portfolio and the second to qualitatively assess the resilience of our overall business strategy. This assessment used two distinct, plausible scenarios established by the IPCC, one which considers a transition to a lower carbon economy consistent with a 2°C or lower scenario (RCP4.5) and one which aligns with heightened physical climate-related risks (RCP8.5). The scenarios were selected to test a range of likely outcomes and identify material climate-related risks over the short, medium and long-term. The first climate assessment considered our portfolio’s susceptibility to a range of climate-related risks, including physical risks (for example flooding, heat stress and extreme weather events) and transition risks (for example market risk and technology). Via this quantitative modelling assessment, we have been able to determine the geographical distribution of our climate-related risks and opportunities and the potential financial losses and gains to our portfolio, respectively, allowing us to focus on mitigation strategies at our most at-risk assets and harness the available opportunities. The second climate assessment involved in-depth analysis of the most up-to-date, peer-reviewed scientific literature. Using this knowledge to determine the frequency, duration, velocity and financial impacts of a range of climate-related risks, an overall likelihood and impact score was assigned to our business’ most material climate risks, including an indication of when we can expect them to materialise. High impact opportunities were also identified in relation to our business strategy. We brought these together to identify our top climate-related risks and opportunities that then informed detailed risk management recommendations. Our risk matrix and emerging risk dashboard are updated annually and biannually, respectively, by the Executive Committee to ensure that we remain attentive to the changing nature of these risks and to reflect evolving stakeholder requirements and the wider macroeconomic and geopolitical landscape. The risk matrix identifies individual climate-related risks and comprehensively outlines specific mitigation strategies to manage these risks. Each risk is scored for its probability, risk impact and residual risk, and responsibility for oversight is detailed. Based on materiality, risks are communicated across relevant levels of our business. The emerging risk dashboard lists the most material risks we have identified and places risks against a timeline to highlight the relative urgency of identified risks. We will be updating this to reflect the findings of the climate risk assessments we undertook. Rigorous risk management processes are present at each stage of the property lifecycle, with all activities taking place within our defined risk appetite. During pre-acquisition due diligence, we conduct environmental assessments to assess environmental risks and energy efficiency. These guide our investment decisions and inform asset management planning. After acquisition, our Sustainability Refurbishment Guidelines integrate a range of climate-related factors, including specifications around EPCs and net zero carbon readiness. To enhance our ability to manage climate-related risks in occupier-controlled spaces, we have introduced green lease clauses and are engaging with occupiers around their operational behaviour, energy efficiency and data sharing. We will continue to undertake asset level ESG audits to identify opportunities to reduce energy consumption and improve efficiencies. Together, these strategies inform our investment and capital allocation activities, as well as acquisition and divestment decisions to maximise the overall performance and resilience of our portfolio’s assets. This year, we have committed to achieving net zero carbon by 2040 – a key step towards building our resilience to transition risk impacts, including increased carbon costs and shifting market demand towards low carbon buildings. Our net zero carbon pathway, published on our website, has full details. We are determined to establish ambitious business strategies and processes to achieve this goal and we are allocating significant investment to secure success. The climate risk assessment process we have undertaken in 2021/22, described above, has informed detailed risk management recommendations that we are reviewing and beginning to implement. We have a three-year roadmap for implementing key actions that will set the foundations for prudent climate-related risk management for the medium to long-term. Climate-related risks and opportunities are fully integrated into our risk management processes. Over the course of 2022, we will be integrating the outputs of the climate risk assessments into our risk management framework and will be integrating key risks within the risk matrix and emerging risk dashboard owned by the Executive Committee which is overseen by the Audit and Risk Committee and the Board.
Describe the organisation’s processes for managing climate-related risks
Describe how processes for identifying, assessing and managing climate-related risks are integrated into the organisation’s overall risk management
Picton Property Income Limited Annual Report 2022
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