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Transition risk: climate-related scenario analysis d. R3 Changing stakeholder perceptions and dependencies related to transport sector emissions intensity
The Group has undertaken transition risk modelling to assess the potential financial effects of climate-related transition risks, including those associated with carbon pricing mechanisms and cost of capital (focusing on the cost of debt). The analysis applies climate scenario modelling based on Phase 5 of the NGFS long-term scenarios to estimate potential cost impacts under the following emissions pathways:
NGFS Net Zero 2050 (1.5C-aligned)
NGFS Delayed Transition
NGFS Current Policies
Represents an orderly and ambitious transition pathway consistent with limiting global warming to 1.5 °C, characterised by progressively tightening climate policy and regulation through to 2050.
Represents a scenario in which climate action is delayed, followed by a rapid and disorderly policy response after 2030, resulting in significantly higher transition costs in the later period.
Represents a scenario in which no additional climate policies are implemented beyond those already in place, resulting in limited emissions reductions and a high warming pathway with global temperatures rising above 3 °C.
The analysis below is intended to provide directional insights into potential outcomes rather than forecasts of future market behaviour. The analysis adopts a long-term time horizon capped at FY35 due to the inherent uncertainty of longer term projections. The scenario analysis of carbon pricing provides an input to the Group’s assessment of the potential financial effects of different transition pathways. This analysis highlights potential emissions hotspots, indicative abatement opportunities, and considerations aimed at managing potential future carbon-related costs. Insights from this analysis also support the Group’s approach to resilience by informing potential mitigation actions, including renewable electricity procurement and energy efficiency initiatives, which may assist in reducing exposure to carbon-related transition risks under different decarbonisation pathways. This analysis remains subject to further refinement and will be reviewed and enhanced on an ongoing basis as part of the development of the Group’s CTAP. In relation to emissions offset liabilities, the analysis reinforces the resilience benefits of renewable power purchase arrangements, particularly under a 1.5°C scenario, as well as ongoing efficiency measures, where cost effective. In relation to cost of debt, the analysis provides additional context regarding the potential influence of climate-related considerations on financing costs. Given the evolving nature of climate-related risks, transition pathways, and market responses, ongoing monitoring of developments in this area remains important. Carbon pricing The Group is not currently subject to direct carbon pricing mechanisms (such as emissions trading schemes or carbon taxes), and the analysis does not assume any direct compliance obligation or regulatory liability.
To support the assessment of climate-related transition risks, modelling incorporates scenario-aligned carbon prices as a proxy for the potential economic cost of emissions under different decarbonisation scenarios. These carbon prices are not forecasts of future policy settings or carbon taxes; rather, they represent the implied price of emissions consistent with achieving the emissions reduction outcomes embedded in each scenario. Accordingly, the results should be interpreted as an indication of potential exposure to carbon-related transition risks across a range of plausible future states, rather than as a prediction of future regulatory costs or liabilities. Actual outcomes will depend on future policy, market and technology developments. The use of these shadow carbon prices enables an assessment of potential indirect exposure to carbon-related transition risks. This includes the quantification of potential impacts across the Group’s Scope 1, Scope 2 (location-based), and selected Scope 3 emissions (specifically Category 1 (Purchased Goods and Services), Category 2 (Capital Goods), and Category 3 (Fuel- and Energy-Related Activities)). Category-specific methodologies were applied to estimate carbon pricing impacts. Scope 1 impacts were based on historical emissions intensity by asset type. Scope 2 impacts were based on electricity consumption adjusted for projected electricity grid decarbonisation. Scope 3 impacts were based on historic emissions associated with purchased goods and services, capital goods, and fuel- and energy- related activities. Scenario-based carbon prices were then applied to estimate potential cost impacts under different transition pathways. Scope 1 cost impacts are not a material contributor across any of the scenarios. Under the current policies scenario no carbon tax is assumed to be implemented and no resulting impacts are observed. Under the delayed transition scenario carbon tax impacts emerge only in the long-term (post FY31).
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