Just group PLC | Annual Report and accounts 2022
SUSTAINABILITY STRATEGY: TCFD DISCLOSURE FRAMEWORK continued
The metrics below are used for our LTM portfolio:
A summary of how Just has interpreted each scenario is provided below:
NGFS SCENARIOS RISK PROFILE
ASSUMPTIONS
CARBON FOOTPRINT The estimated carbon emissions of the lifetime mortgage portfolios expressed as an average per US$ million of lifetime mortgage balance emissions. PROPERTY VALUE AT RISK A risk metric which estimates the potential reduction in residential property values under different climate scenarios arising from physical and transitional risks. ENERGY PERFORMANCE We monitor our portfolio distribution by EPC rating using actual and estimated ratings to measure our exposure to any introduction of minimum EPC standards.
Divergent Net Zero (“DNZ”)
Highest transition risks of all, more acute in consumer than industrial sectors. Overall lowest physical risk of the NGFS scenarios.
Net zero reached by 2050 but with higher costs due to divergence with more stringent policies across all sectors, primarily focusing in the transportation and buildings sectors. Availability of carbon dioxide removal (“CDR”) technologies assumed to be lower than for Net Zero 2050. Emissions are in line with a climate goal, giving at least a 50% chance of limiting global warming by the end of the century. UK, US, EU and Japan reach net zero for all greenhouse gases by 2050. China makes progress in meeting its carbon net zero pledge by 2060. This requires immediate rigorous policies to be introduced. CDR needed to reach this goal, to be in line with sustainable levels of bioenergy production. This will result in net zero CO 2 emissions by 2050. Assumes only current implemented policies are preserved leading to higher physical risks. Emissions continue to grow until 2080 leading to around 3 degrees of warming and irreversible changes such as rising sea levels.
Net Zero 2050 (“NZ2050”)
Relatively low physical risk combined with
relatively high transition risk.
The emissions calculation uses assumptions based on the EPC rating that is held for the property, implied by the property postcode, or modelled (available for all of our portfolio).
SCENARIO ANALYSIS Background
Scenario analysis has been used to deepen our understanding of the risks the Group faces over a long-term time horizon. Just’s climate scenarios are anchored on two parts: property scenarios measured using the Representative Concentration Pathway (“RCP”) and the wider Network for Greening the Financial System (“NGFS”) climate scenarios. The latter was applied across both the lifetime mortgages and the investment portfolio. For 2022, Just’s base case scenario was amended to a Divergent Net Zero (“DNZ”) scenario given current market conditions, where policy actions appear to be changing due to general geopolitical tensions and the wider implications of the war between Ukraine and Russia. In the alternative scenarios, the Nationally Determined Contributions scenario was amended to the Current Policies scenario given it reflected the most extreme physical risk scenario, where there is potential for more frequent extreme weather events. We have taken a prudent approach by assessing the most extreme transition/physical risk scenarios to understand the illustrative impacts on the Group.
Current Policies (“Hot House World”)
Moderate to severe physical risks, but relatively low transition risks.
ENHANCEMENTS: As part of the scenario analysis, we have further enhanced our approach in the following ways: 1. Quantitative analysis – Sector specific analysis to identify possible risk exposures using the climate financial risk forum (“CFRF”) scenario tool and the NGFS scenario explorer, with review by representatives from business and risk areas. 2. Data overlay – MSCI CVaR data for the selected NGFS scenarios was cross-referenced with the outputs of the qualitative analysis. Overall, for material risk exposures possible management actions and opportunities were noted.
disorderly
too little too late
As part of this process we considered the following factors:
Divergent net zero (1.5 C)
Transition risk
Policy The extent of policy action and potential movements in carbon pricing. Technology The extent of investment into energy efficiency/low carbon technologies/CDR. Movements in capital expenditure to develop efficient/low carbon products/services. Regulation Potential changes in regulation across sectors/regions. Market Market demand for energy efficient/low carbon products or services. The impacts on productivity/availability from human and natural capital. Legal Potential exposure to legal action due to emerging transition risks from policy/regulatory action.
Net Zero 2050 (NZ2050)
Current Policies
orderly
Hot house world
Potential economic damages from extreme weather events.
Physical risk
Acute
Chronic Movements in GDP from physical risks with rising temperatures over time.
Low
Physical Risks
High
Source: derived using the NGFS climate scenarios NGFS Scenarios Portal.
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