Vodafone 2024 Annual Report

68 Vodafone Group Plc Annual Report 2024

Strategic report



Other information

Climate-related risk (continued)

Our approach to physical risk assessment in Europe This year, we completed a quantitative scenarios analysis of physical climate risks in Europe, which we commenced in 2022. Overall, this assessment involved screening over 650 assets across Spain, Italy, the UK, Germany and Greece, under both RCP 2.6 (early policy action scenario) and RCP 8.5 (no policy action scenario), to identify assets at ‘high’ or ‘very high’ risk of damage. We screened assets from three categories of our infrastructure asset portfolio, which are considered critical to our operations: – Low-rise structures such as offices and bunkers; – Control room assets such as technical buildings, warehouses and data centres; and – Station assets such as railway stations. The impact on the assets was assessed in relation to the following eight climate perils: 1. Coastal inundation 2. River flood 3. Surface-water flood 4. Extreme heat 5. Extreme wind 6. Wildfire 7. Freeze thaw 8. Drought-driven subsidence The nature and likelihood of the impact of the climate perils was modelled at a granular resolution based on external climate data sets, overlaid with the geolocation of each asset. The magnitude of the potential impacts was assessed based on the potential value at stake in terms of: – Damage ratio (average proportion of damage to an asset in a given year); – Expected cost of damage (financial cost of remedying damage sustained); and – Failure probability (annual probability of a climate hazard causing the asset to stop working). Between 6.6% and 7.0% of analysed sites were identified as being at ‘high’ or ‘very high’ risk of damage from climate perils by 2050 (rising to 7.2% to 8.1% by 2100), defined as: – High: Expected cost of damage notable, with potential cost implications; and – Very high: Widespread damage/disruption. The majority of value at stake resulting from climate perils across the asset portfolio is associated with the top 10 at-risk assets. Five of the assets at ‘high’ or ‘very high’ risk were selected for a deep dive analysis of potential operational and financial impacts, to understand the potential drivers of financial loss and mitigation actions. The most significant drivers contributing to the expected cost of damage for these assets were coastal inundation and riverine flooding. By 2100, in the scenario with no policy action, all five sites were also expected to be at high risk of operational failure due to extreme heat events. Findings from our 2022 physical risk assessment were reinforced by an additional study of physical risks conducted during FY24 with a particular focus on understanding implications for insurance of over 80 of our highest value assets. This year’s most recent study concurred with the findings of our 2022 physical risk assessment, highlighting the increased risk of flooding and heatwaves that could impact our operations in the long term.

Our approach to climate-related risk assessment in Africa Vodacom Group publishes a standalone report disclosing details of our climate-related risk and opportunity assessment for our markets in Africa. Click to read Vodacom Group’s latest TCFD report: vodacom.com/reporting-centre Our 2023 analysis confirmed that our markets in Africa will be exposed to increased occurrence and severity of extreme weather events – with impacts already being felt today. Climate perils include increasing temperatures, drought conditions and increased rainfall, storm surges and cyclonic activity. For example, in March 2023 Cyclone Freddy (one of the most powerful and longest-lasting cyclones that has impacted Mozambique since the beginning of 2022) impacted our operations, workforce and assets. Similarly, Vodacom’s climate-related risk and opportunity analysis confirms that our business will be affected by transition risks in relation to evolving stakeholder expectations, policies and market evolution. Our approach to transition risk assessment In FY24, we conducted qualitative scenarios analysis of transition risks across our global business, including both Europe and Africa. Based on desk research, industry peer comparison and expert insights, we identified 67 risks and opportunities that could be relevant to Vodafone Group. We shortlisted 28 of these for further analysis based on a preliminary screening of their relative potential severity, likelihood and time horizon of impact. Using insights from internal engagement with cross-functional stakeholders, the shortlist was synthesised into seven priority risks and opportunities. Five of which are related to the low carbon transition, which we consider could reasonably be expected to affect Vodafone Group’s prospects. Looking across three future scenarios, we conducted a qualitative analysis of the most significant transition risks and opportunities. We mapped out impact pathways to understand how the climate-related transition risks could lead to outcomes and impacts on Vodafone and their potential to result in financial impact (for example, through asset impairment, increased costs or loss of revenue). This included examining the potential impacts on our own operations and potential impacts on our suppliers, which could, in turn, affect the security of supply of goods and services to Vodafone. We assessed the extent to which the steps in the impact pathways could occur in a range of scenarios based on published research of future market, policy and legal and stakeholder sentiment trends and forecasts. The results of our qualitative scenarios analysis of transition risks and opportunities supplement the findings of our 2022 quantitative scenarios analysis of physical risks. In combination, these provide us with a reasonable and holistic view of how our highest priority climate-related risks and opportunities could play out over time.

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