CLIMATE ANALYSIS REPORT CONTINUED
3 Risk management Climate-related risks are considered one of our principal risks and this is reflected in our financial reporting. The process for identifying climate-related risks is integrated into our risk management framework.
Opportunity description
Our response
Climate-related opportunities
7 Acceleration of renewable energy Driven by decarbonisation and increasing regulations, the renewable energy market will continue to grow in the RCP8.5 scenario and accelerate in the RCP2.6 scenario. The International Energy Agency has estimated that renewable energy production will be 2.6 times higher than 2022 in 2030, generating almost 45% of global electricity requirements. Timeframe Short – long term
Renewable energy is one of our target markets, and we are leading in the fields we serve, such as transformers for wind turbines and DC isolator switches for solar systems. Our products can also be applied to other types of renewable energy, such as hydro, which will be an addition to our existing renewable energy exposure. Our broad range of technologies is applicable to many parts of the renewable energy value chain. From generation to transportation and distribution, we will be able to take advantage of these opportunities.
As part of the climate change scenario analysis exercise, a multi-function working group was established in 2022. This comprises members from finance, divisional management, risk and internal audit, and the GST. This working group is a subset of the GMC. In identifying and assessing climate-related risks to the Group’s operations, assets, and reputation, we used primarily a top-down approach. Given the Group’s decentralised structure, we consider this approach more appropriate for assessing climate-related risks, particularly physical ones. However, we have also taken a bottom-up approach by factoring in the feedback from our operating businesses where appropriate. The scenario analysis working group conducted a top-down review of the Group’s climate-related risks and opportunities in order to identify new or emerging risks and opportunities. The assessment considers two categories of climate-related risks: the transition to a low-carbon economy (transition risks) and risks associated with the physical impacts of climate change (physical risks). The risks assessed for both the RCP2.6 and RCP8.5 scenarios were drought, heat stress, wild fires, precipitation, river and coastal flooding, and tropical cyclone. How we identify and prioritise climate-related risks To assess transition risks, we engaged with each operating business to better understand the preferences of our customers, suppliers and employees and the challenges they face in tackling climate change. The outcome was factored in during the risk identification process. Each risk was discussed and scored based on the probability and magnitude of potential financial impact, and the multiplication of the two scores determined the materiality of the risk. Through this process, the most material risks were identified. Those risks that were deemed to be quantifiable were included in the financial modelling. Existing mitigations and progress made were also factored in during the quantification process. Cost and benefit analysis for the mitigations of each quantifiable risk was carried out. A five-year cashflow forecast was modelled for both RCP2.6 and RCP8.5 scenarios.
TCFD recommended disclosures
■ Describe the organisation’s process for identifying and assessing climate-related risks ■ Describe the organisation’s process 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
8 Acceleration of electrification of transportation Decarbonisation and the recent energy crisis have driven the acceleration of the electrification of transportation. This is reflected both in personal vehicles and mass
Further information ▶ Risk management on pages 74 to 78
Transportation is one of the major sources of carbon emissions globally. Switching to cleaner methods of transportation is crucial for meeting the net-zero goals of many governments. Being one of the Group’s target markets, we focus on mass transportation, such as rail, buses and ships, and specialist vehicles, such as delivery trucks. We are targeting retrofitting ageing systems as well as developing new applications. In addition, our knowledge and know-how of magnetic components will enable us to take advantage of growth in the electric vehicle infrastructure market, such as charging stations.
▶ Sustainability risk management on page 48
transportation infrastructure. The power supplied to the global transport system by renewable energy is expected to increase seven-fold between 2024 and 2030. Timeframe Short – long term
For physical risks, we interrogated open-source data available on the CLIMADA platform to help us with scenario analysis. We assessed our resilience in a time horizon between 10-80 years for relatability with asset lifespan, as recommended by TCFD. The CLIMADA data was combined with the precise locations of our sites to consider combined exposure to extreme weather events (acute risks) and to gradual changes in weather patterns (chronic risks) for each of our 69 facilities globally, including warehouses and offices. Based on the insured asset value and risk exposure, each site scored between 1 and 5 (5 being the highest risk). For those with the highest scores, mitigation plans were drawn up, and associated costs were assessed and factored into the scenario financial models. Once the climate-related risks were identified and prioritised, the financial impact of the key risks up to 2030 was estimated for both RCP2.6 and RCP8.5 scenarios. The key climate risks, mitigation plans, and the net financial impact in both scenarios were presented and discussed at the GMC before being reviewed by the Sustainability Committee, which also included the Chairs of the Audit and Risk Committee and Remuneration Committee.
9 Acceleration of plant and machinery automation Climate change could reduce productivity as the workforce is impacted and production disrupted. An increasing number of companies will look to automate processes to improve efficiency and productivity. Timeframe Medium – long term
Industrial & connectivity is our largest target market. Our fibre optic and wireless connections and a broad range of sensing capabilities, essential for automation, will enable us to continue growing in this market.
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Annual Report and Accounts for the year ended 31 March 2026
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