Vodafone 2023 TCFD Report
Vodafone Group Plc Task Force on Climate-related Financial Disclosures (‘TCFD’) Report 2023
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Vodafone Group Plc Task Force on Climate-related Financial Disclosures Report 2023
Overview
Risk Management
Metrics and Targets
Governance
Strategy
A message from our Chief Executive
At Vodafone, we understand that setting public commitments to tackle climate change is essential. Now we have established our ambitions, we are focused on the most challenging part: executing the plan to achieve those ambitions and driving the necessary transition, whilst recognising societal requirements and the variation in levels of international development. We believe business success should not come at a cost to the environment, and we are committed to reducing the impact of our activities. We also see a key role for our digital networks and technologies in helping to address climate change. Digitalisation is key to saving energy, using natural resources more efficiently and creating a circular economy. We are confident that we will achieve our 2030 net zero target for our own operations (Scope 1 and 2) as we have made significant progress in our journey: our European markets have been powered by 100% renewable electricity since July 2021 and our teams are working to achieve our goal to power 100% of our global operations with renewable electricity by 2025. As part of this goal, we are also placing significant focus on developing innovative sustainable power solutions; for example, working with external organisations to develop self-powered mobile masts and install micro-turbines. Our goal to achieve net zero across our entire operations by 2040 is ambitious and we will publicly release our climate transition plan in the next year. However, achieving net zero across our entire value chain is also reliant on the transformation programme of our partners. We are proud to have been recently recognised by CDP as a leader in supplier engagement programmes to drive climate change action.
Furthermore, we are aware that climate change poses risks to our business and industry, as well as broader society. As part of our commitment to operate ethically and sustainably, we strive to understand climate-related risks and opportunities and embed responses to these into our business strategy and operations. Over the last year, we have continued to build on our previous climate scenario work and considered our resilience against key climate-related risks and opportunities. As this report demonstrates, we are using the insights to better understand mitigating controls, engage with relevant stakeholders across the business and identify ways to further embed climate risk into our risk management system and processes. Our ESG Committee (a Board committee established in 2021), continues to ensure our approach to climate-related risks is integrated into our strategy. Chaired by Amparo Moraleda, the role of the Committee is to provide oversight of Vodafone’s environmental, social and governance (‘ESG’) programme, sustainability agenda and responsible business practices. The Committee also provides oversight of Vodafone’s contribution to the societies we operate in under our social contract, which is the partnership we wish to develop with governments, policy makers and civil society. Our Task Force on Climate-related Financial Disclosures (‘TCFD’) Report offers a transparent summary of our approach to climate-related strategy in line with the TCFD framework; it details our progress, and the opportunities and challenges that we face on our path to net zero. Margherita Della Valle Chief Executive
Margherita Della Valle Chief Executive
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Vodafone Group Plc Task Force on Climate-related Financial Disclosures Report 2023
Overview
Risk Management
Metrics and Targets
Governance
Strategy
Overview About the Task Force on Climate-related Financial Disclosures
The aim of the Task Force on Climate-related Financial Disclosures (‘TCFD’) is to improve transparency of organisations’ climate-related risks and opportunities so that investors can make informed decisions on where to deploy their capital. In June 2017, the TCFD released it’s recommendations, providing a global framework for companies and other organisations to develop more effective climate-related financial disclosures through their existing reporting processes. Since then, the global momentum behind the TCFD’s work has grown significantly and, subsequently, multiple jurisdictions have proposed or finalised regulations which require disclosures similar or aligned to the TCFD framework. The TCFD structures its recommendations around four thematic areas that are core elements of how organisations operate, as shown in Figure 1. Under the core elements are a total of 11 recommendations setting out the information that companies should disclose to provide transparency and promote stability in the face of climate-related risks and opportunities. We recognise that climate change poses physical and transitional risks, as well as providing opportunities for our business. The former include both physical risks caused by the increased frequency and severity of climate and weather events, and transitional risks associated with economic, technology or regulatory changes related to the move towards a greener economy. We routinely consider the effects of climate change in our strategic and business planning so that we can maximise the value we bring to our customers, investors and the communities where we operate. We also monitor changes in the business landscape and markets to understand where there may be opportunities resulting from the transition to a low-carbon economy. We published our first standalone TCFD Report in 2021, on a voluntary basis, before TCFD reporting became mandatory in 2022. We aim to continually improve our climate reporting based on the latest available guidance, while taking into consideration an increasing number of emerging requirements from various stakeholders. In this year’s report we have once again adopted the structure suggested in the TCFD guidance (as amended in October 2021) and are pleased to share our progress against the recommended disclosures.
Figure 1 Core elements of recommended climate-related financial disclosures
Contents
Overview 1 A message from our Chief Executive 2 About the Task Force on Climate-related Financial Disclosures 3 Compliance with TCFD recommendations 4 Our progress on climate strategy 6 Governance The governance around climate-related risks and opportunities 7 Strategy
Governance
Strategy
Risk Management
The actual and potential impacts of climate-related risks and opportunities on the organisation’s business, strategy, and financial planning
15 Risk Management
The processes used to identify, assess, and manage climate-related risks
Metrics and Targets
17 Metrics and Targets
The metrics and targets used to assess and manage relevant climate-related risks and opportunities
Recommendations of the Task Force on Climate-related Financial Disclosures, June 2017
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Vodafone Group Plc Task Force on Climate-related Financial Disclosures Report 2023
Overview
Risk Management
Metrics and Targets
Governance
Strategy
TCFD recommendations
exposure and management based on the number of infrastructure assets that are at high or very high risk of climate impacts such as extreme weather events. Whilst these are important steps forward on our climate-related risk disclosure journey, we recognise that we have not yet set targets in place to measure our full suite of climate risks. Our disclosure this year improves upon our position in 2022, when we were consistent with eight out of 11 recommendations. In this year's report, we are pleased to include further detail on the impact of climate-related risks and opportunities on our business strategy and financial planning, and a quantitative measure of the number of assets at high or very high risk of physical climate change. As industry practices evolve and our internal programme matures, we aim to address the remaining gaps in our climate-related risk management and reporting approach over the next three years.
We have continued to enhance our policies, processes and reporting with respect to the TCFD recommendations. We have considered our ‘comply or explain’ obligation under the UK’s Financial Conduct Authority Listing Rules and have detailed in the table below the 11 TCFD recommendations and our progress. We are consistent with disclosing 10 out of 11 TCFD recommendations for the year ended 31 March 2023. There is one TCFD recommendation where we are currently partially consistent with: Metrics and targets (physical risks): We measure and have set ambitious targets for reducing our carbon emissions. We also have metrics in place to measure our energy use, which is one underlying factor in our exposure to transition risk. As a measure of the climate opportunity associated with developing and deploying products to help society decarbonise, we also report annually on the carbon emissions avoided through the use of green digital solutions. This year, we also began measuring our physical risk
TCFD recommendations
Governance a. Describe the Board’s oversight of climate-related risks and opportunities
Progress
Page number
Consistent Consistent
6 6
b. Describe management’s role in assessing and managing climate-related risks and opportunities
Strategy a. Describe the climate-related risks and opportunities the organisation has identified over the short, medium and long term b. Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning c. Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario
Progress
Page number
Consistent Consistent Consistent
9
7, 13-14
13-14
Risk Management a. Describe the organisation’s processes for identifying and assessing climate-related risks b. Describe the organisation’s processes for managing climate-related risks
Progress
Page number
Consistent Consistent Consistent
15 16
c. Describe how processes for identifying, assessing and managing climate-related risks are integrated into the organisation’s overall risk management
15-16
Metrics and Targets a. Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process b. Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (‘GHG’) emissions, and the related risks c. Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets
Progress
Page number
Consistent Consistent
8, 17-18
17
Partially consistent 17-18
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Vodafone Group Plc Task Force on Climate-related Financial Disclosures Report 2023
Overview
Risk Management
Metrics and Targets
Governance
Strategy
Our progress on climate strategy Evolving our approach to TCFD
Click to read our Annual Report vodafone.com/ar2023 Click to read our ESG Addendum investors.vodafone.com/esgaddendum
The timeline below shows a summary of how we have integrated the TCFD programme into our strategy and operations over recent years. Similar to our previous disclosures, we have once again opted to publish a standalone TCFD Report to enable us to provide more detailed information for investors and other interested stakeholders in a more accessible format. This TCFD Report should be read in conjunction with our other disclosures on climate change and our wider environmental, social and governance (‘ESG’) topics in our Annual Report and ESG Addendum to gain a broader understanding of our climate action.
Initial identification and assessment of climate-related risks and opportunities We performed an initial exercise to identify climate-related risks and opportunities for Vodafone and assessed their materiality. We included a summary of our findings in our 2020 Annual Report. Figure 2 Vodafone’s climate journey
Physical climate risk assessment
2023 TCFD Report Our 2023 TCFD Report provides our latest update on our approach to climate-related risks and opportunities, in line with the most recent guidance on the TCFD framework (October 2021).
Climate scenario analysis We completed a climate scenario analysis for a subset of our material risks to better understand the potential impact under three different climate scenarios. Read more on pages 10-12
First standalone TCFD Report We published our first standalone TCFD Report in 2021 to detail the progress made to date to align with the TCFD recommendations, with a breakdown of each TCFD element.
2022 TCFD Report Our 2022 standalone TCFD Report outlined actions undertaken to strengthen our climate governance and risk management and refresh our climate risk assessment to better align with actionable time horizons.
During FY23, we assessed the potential impact on a selection of our assets that are most at risk from physical climate change, so that we can better plan for business interruptions over the long term. Read more on page 8
2019
2020
2021
2022
2023
– 100% renewable electricity acceleration and Green Gigabit Net branding launched – 350m tonnes carbon enablement target announced
– Eco Rating launched to help customers identify the most sustainable mobile phones on the market.
– Purpose-led Vodafone announced, including
– Purpose
– 2040 net zero target announced – 2030 carbon reduction targets approved by Science-Based
– CDP A-List rating
– Vodafone is a headline sponsor at the 2022 climate change Conference of the Parties (‘COP27’)
– Global
– A-list rating awarded to
– 100%
– Vodafone Group named as
embedded in supplier selection process request for quotation (RFQ)
partnership with WWF announced
renewable electricity in Europe
Vodafone by Climate Disclosure Project (‘CDP’) for
a leader in CDP’s Supplier Engagement Rating Scheme
Planet targets
climate change action
(enabling our customers to reduce their environmental footprint)
Targets initiative
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Committed to reaching net zero Our progress on climate strategy continued
We are committed to reaching net zero for our own operations (Scope 1 and 2) by 2030, and for our full value chain (Scope 1, 2 and 3) by 2040. Our 2030 carbon reduction targets have been approved by the Science Based Targets initiative as in line with the reductions required to keep global warming to 1.5°C, the most ambitious aim of the Paris Agreement. By 2030, we aim to make an absolute reduction in carbon emissions from our own operations (Scope 1 and 2 emissions) of 95% compared to 2020, and neutralise any remaining emissions with high quality carbon offsets.
In the same timeframe, we also aim to halve the carbon emissions generated from our value chain (Scope 3 emissions). This includes emissions generated by upstream activities (in our supply chain), downstream activities (through use of our products), and activities that we help finance through our investments. Beyond 2030, we will continue driving down our Scope 3 emissions and, by 2040, we aim to achieve net zero emissions across our full value chain. 1
1. This year we amended our terminology from ‘fully abate’ to net zero to align with the definitions in the SBTi’s Corporate Net Zero Standard. Going forward we will seek to align our 2030 and 2040 net zero targets with the SBTi definition of net zero, which means that we will reduce our carbon emissions in absolute terms by 90-95% by our target year (in line with a science-based 1.5 degree pathway), and neutralise any residual emissions through high quality carbon offsetting.
2021
2025
2030
2040
Our path to
Electrify our fleet
Net zero emissions from our operations (Scope 1 & 2), including:
100% of the electricity powering our global operations purchased from renewable sources
Net Zero emissions across our full value chain (Scope 1, 2 & 3) – Reduction in our total emissions in absolute terms by at least 90%, and neutralising of any residual emissions with high quality carbon offsets
100% of the electricity powering our European network purchased from renewable sources
– Our buildings and fleet – Purchased electricity – Certified carbon offsets covering maximum 10% of own emissions Emissions from our value chain (Scope 3) halved, including: – Our supply chain – Use of products we sell – Our investments Read more about Scope 3
All network waste reused, resold or recycled
Enable our business customers to reduce their carbon emissions by a cumulative total of 350m tonnes globally between 2020 and 2030
categories in our ESG Addendum
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Vodafone Group Plc Task Force on Climate-related Financial Disclosures Report 2023
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Governance
Ensuring accountability and responsibility for climate-related risks and opportunities
In November 2022, the ESG Committee reviewed its terms of reference and agreed to introduce joint oversight of selected ESG matters by the ESG Committee and the Audit and Risk Committee. This will be executed through increased sharing of papers between the committees, and a new joint meeting each May to review ESG disclosures and identify focus areas for the following year. Management’s role The Chief External and Corporate Affairs Officer, a member of the Executive Committee, is the sponsor for the Planet agenda as part of our purpose strategy, and has overall accountability for climate change action within the Group. This includes providing updates to the Board on progress towards our climate-related goals. Reporting to the Chief External and Corporate Affairs Officer is the Group Director, Sustainable Business and Foundation, who has accountability for the sustainable business strategy. The Head of Sustainable Business reports to the Group Director, Sustainable Business and Foundation and is responsible for developing and executing the strategy and providing updates that include any climate-related issues of relevance to Vodafone, which are communicated to the Executive Committee as required. The Head of Sustainable Business manages the sustainable business team which includes the Environment Lead, whose responsibilities include developing, monitoring and reporting on climate change programmes and targets, such as our carbon reduction goals, Science-Based Targets commitment and Vodafone’s broader Planet agenda. The Planet Steering Committee consists of senior management from the functions responsible for delivering climate action and initiatives, reporting to the Chief External and Corporate Affairs Officer. The steering committee is supported by several cross-functional working groups, who cascade strategic plans from Group to operating company level. Since energy usage is a material part of our climate change impact, the Chief Network Office (‘CNO’) has responsibility for energy use and managing the performance of the network, including overseeing energy efficiency improvements. In addition, as the most significant physical risks to Vodafone are damage to infrastructure and interruption or reduction in the quality of our services, our CNO is ultimately responsible for managing the physical climate-related risks. In relation to the climate impacts to our business, the Group Head of Risk leads the TCFD programme that is discussed throughout this report. Climate change risks and progress on aligning to the TCFD recommendations are reported to the Executive Committee and other key stakeholders through our annual principal risk assessment process and through meetings with the sponsoring executives. Next steps in our TCFD programme: Having established a formal climate governance structure with clear accountabilities and responsibilities through Board, management and operational levels, our next steps are to continue formalising and embedding the structure to strengthen and accelerate the development of our strategy, deliver climate action, and climate reporting. We are also looking to form a cross-functional working group with specific responsibility for monitoring climate-related risks and opportunities, to ensure that we continue to address these as part of our wider Planet agenda, as well as meet our climate reporting obligations effectively over the long term.
Climate governance
Board
ESG Committee
Audit and Risk Committee
Executive Committee
Chief External and Corporate Affairs Officer Group Director, Sustainable Business
Purpose and Reputation Steering Committee Planet Steering Committee
Risk and Compliance Committee Group Head of Risk
Governance is defined in the TCFD recommendations as “a set of relationships between an organisation’s management, its board, its shareholders, and other stakeholders. Governance provides the structure and processes through which the objectives of the organisation are set, progress against performance is monitored, and results are evaluated”. It is recommended that organisations establish and disclose appropriate internal governance processes for both climate-related risks and opportunities.
Board oversight Our Company strategy is approved by the Board, which includes our purpose and Planet commitments to reduce our environmental impact, such as reaching net zero emissions across our full value chain (Scope 1, 2 and 3) by 2040 and other targets. The Board also oversees progress against these targets and approves disclosures contained in the Annual Report, the ESG Addendum and the TCFD report. To ensure the Board has sufficient oversight of our sustainable business strategy and performance, including climate-related targets, the Board established an Environment, Social and Governance (‘ESG’) Committee in 2021, which meets three times per annum. Chaired by Amparo Moraleda, a Non-Executive Director, the ESG Committee is responsible for approving the ESG strategy, including climate-related targets and KPIs, and monitoring progress. In order to remain well-informed on specific climate-related topics that are impacting Vodafone, the ESG Committee receives regular updates and hosts deep dives with subject matter experts. In 2022, these included Scope 1, 2 and 3 emissions, and circularity. On an annual basis, Vodafone’s proposed principal risks, watchlist risks and emerging risks are reviewed and approved by the Executive Committee before being submitted to the Board’s Audit and Risk Committee (‘ARC’) and the Board. Climate change has been, and remains one of our watchlist risks and so the ARC has oversight of all material climate-related risks, which are reported on an annual basis.
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Strategy
Building climate resilience into our business strategy Strategy is defined in the TCFD recommendations as: “an organisation’s desired future state.
opportunities in three possible future climate scenarios (in line with the reference scenarios published by the Bank of England in December 2019). The scenario analysis provided an indication of the magnitude and potential impact of each risk and opportunity and how each could materialise over different time horizons: short-term (2020-2025), medium-term (2026-2035), and long-term (2036-2050). The results (summarised in Figures 5, 6, and 7) have helped us to focus our efforts on the most important risks and to develop mitigation strategies at the Group level, as well as in our local markets where necessary. In 2022, we refreshed our climate risk assessment to incorporate the latest climate trends, science, and our own knowledge of how climate change was impacting our business. Our refreshed assessment applied updated time horizons to better align with both actionable timeframes for the key internal management processes that drive mitigation action, and the long-lived nature of some of our network assets. Short-term risks and opportunities (those that could materialise within 0-3 years) are now aligned with the time horizon of our risk management framework and our long-range business planning process; and medium-term risks (3-5 years) are aligned with the timeframes used for internal planning purposes. The long-term to very long-term time horizon (5 to 28 years) provides us with a view of climate- related risks on our long-lived infrastructure assets until 2050, in line with global targets for reaching net zero. This year, we conducted two exercises to review our climate risks and opportunities. Firstly, we conducted a scenario analysis focusing on the potential impact of physical climate-related risks on specific types of our infrastructure assets. This assessment examined the potential for physical damage to over 650 of our infrastructure assets due to extreme weather. It Identified that 6.6%-7% (depending on the scenario used) of analysed sites could be at high/ very high risk of damage from climate perils by 2050. The analysis helps us to target our risk mitigation actions to protect and adapt specific assets that are most exposed to physical climate risks. Read more on page 8 Secondly, we carried out a survey and a series of interviews to gather views of physical risks, transition risks and opportunities from our internal stakeholders across relevant functions to refresh our climate risk assessment. The exercise gauged progress in building climate resilience into our strategies and business plans across areas including energy
Figure 2 Risk and opportunity categories used in our climate risk assessment and scenario analysis
An organisation’s strategy establishes a foundation against which it can monitor and measure its progress in reaching that desired state. Strategy formulation generally involves establishing the purpose and scope of the organisation’s activities and the nature of its businesses, taking into account the risks and opportunities it faces and the environment in which it operates”. It is recommended that organisations disclose the nature and impact of their material climate-related risks and opportunities, as well as the resilience of their strategy under each climate scenario chosen. We recognise that both climate-related risks and opportunities have the potential to impact our business. We have therefore sought to take the necessary steps recommended by the TCFD to identify and assess the potential materiality of the risks and the opportunities, so we can maximise the positive impacts and minimise the negative impacts on our business. Evolving our understanding of climate-related risks and opportunities Since starting our TCFD journey in 2019, we have conducted a series of increasingly targeted analyses to identify and assess climate-related risks and opportunities over the short, medium and long term. Our initial qualitative climate risk assessment in 2019 identified 11 climate-related risks and three climate-related opportunities with potential to materially impact our business. Material risks are those that could have a significant effect on our operations, strategy and financial planning if they are not managed appropriately. Material opportunities, when taken, will improve not just our financial performance, but also reduce our impact on the planet and, in some cases, enable other organisations and individuals to reduce their impact as well. Across 2020 and 2021, we conducted a scenario analysis to assess the resilience of our business to the material climate-related risks and
Our scenario analysis approach
Category
Description
Physical risks
High-level qualitative scenario analysis (2020) High-level quantitative analysis, focused on selected infrastructure asset types in at high risk (2022-2023) High-level qualitative scenario analysis (2020)
Risks related to the physical impacts of climate change, both event driven (acute) and longer-term (chronic) shifts in climate patterns, and which may have financial implications for companies Growing external pressures and demands for action to transition to a lower-carbon economy result in changes to the regulatory or market environment, in ways that could negatively impact company costs, revenue or market share
Transition risks
Opportunities A shifting business landscape in a net zero world opens new market and investment opportunities
High-level qualitative scenario analysis (2020)
management, networks and technology, policy and regulation. Energy market volatility and extreme weather events in several of our markets (including flooding in Germany and cyclones in Mozambique) over recent years has highlighted the potential for impact on our business and strengthened our commitment to continue building resilience over time. Similarly, global supply chain disruption in recent years has illustrated how external shocks could impact our supply chain, in ways not dissimilar to longer-term global warming. As a result, we have refined the list of material climate-related risks to prioritise our efforts and identified an additional area of opportunity to exploit as shown in Figure 4.
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Vodafone Group Plc Task Force on Climate-related Financial Disclosures Report 2023
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Strategy continued
Physical climate risk portfolio analysis Approach
The project assessed the physical impacts of eight major climate change perils across select Vodafone assets under both RCP 8.5 and RCP 2.6 climate pathways. Over 650 key infrastructure assets across Spain, Italy, UK, Germany and Greece were included.. The analysis utilised a multi-step materiality modelling approach that is fully aligned with the UK Government’s recommended TCFD physical risk modelling methodology.
As damage to our infrastructure has been identified as a very long-term risk for Vodafone, we have purposely chosen to focus on long-term to very long-term time horizons, as well as extend analysis up to 2100, which is beyond the usual time horizon we use for our climate risk assessments.
The purpose of the analysis is to understand how the impacts of physical natural catastrophe damage on our asset portfolio may evolve in the long-term under different climate change scenarios. In this exercise, we focused on three broad infrastructure asset categories: low-rise structure assets (such as office buildings, bunkers etc.), control room assets (such as warehouses and data centres), and station assets (railway stations).
Figure 3: Key factors used for the analysis Climate perils – Coastal inundation – River flood – Surface water flood
Climate scenarios – RCP 2.6: greenhouse gas (GHG’) emissions are reduced, resulting in an estimated global average temperature rise of 1.6°C by 2100 compared to the pre-industrial levels – RCP 8.5: GHG emissions continue to grow, resulting in an estimated global average temperature rise of 4.3°C by 2100 compared to the pre-industrial levels
Physical impact evaluation The following criteria were used: – Damage ratio (average proportion of damage to an asset in a given year) – Expected cost of damage (financial cost of remedying damage sustained) – Failure probability (annual probability of a climate hazard causing the asset to stop working)
Risk level definition – Low : Possible superficial damage, which may have minor cost implications – Medium: Superficial damage, minor cost impact – High: Expected cost of damage notable, potential cost implications – Very high: Widespread damage/ disruption
Time horizon 2020 2025 2035 2050 2100
– Extreme heat – Extreme wind – Wildfire – Freeze thaw – Drought-driven subsidence
Results Portfolio analysis confirmed that the biggest impact would be felt in the very long term. We estimate 6.6%-7% 1 of analysed sites could be at high or very high risk of damage from climate perils by 2050, with an increase to 7.2-8.1% 1 by 2100. The number of assets at high or very high risk of damage was largely the same in 2035 and 2050, but we noted an increase in the number of assets when looking at the 2100 time horizon. As the RCP 8.5 scenario is the highest baseline emissions scenario, where the physical risks would impact us most significantly, we used the project to understand our portfolio of high-risk and very high-risk assets in each of the countries which were part of the analysis.
The chart below illustrates the amount of tested assets which were classified as very high-risk or high-risk by 2050 under RCP 8.5 scenario. Proportion of tested assets at high or very high risk of damage from climate perils (%)
Now that we have data for which assets are at high or very high risk in the short term, medium term, long term and very long term, we will use that list to conduct a deep dive analysis into five key assets, which represent the majority of the expected cost of damage across the portfolio, to better understand what further actions we can take to increase their climate resilience.
12.20%
11.00%
6.90%
5.35%
4.45%
1. The two numbers represented by RCP 2.6 and RCP 8.5 scenarios.
Spain
Greece
Germany
United Kingdom
Italy
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Strategy continued
Figure 4: Vodafone’s material climate-related risks and opportunities Category Description
Potential impact before mitigations High-level description of mitigating strategy
Time horizon
Physical risks
Damage to infrastructure caused by increasing frequency and severity of extreme weather events, such as wildfires, flooding, and storms Interruption to or reduction in the quality of services due to increased precipitation and extreme weather events Supply chain disruption due to climate impacts on key suppliers Increases in global temperatures leading to an increase in the consumption of energy for cooling Increasing stakeholder scrutiny over our environmental performance, impacting revenue, market share and reputation
Increasing capital costs to replace damaged assets
Improve climate resilience of network assets at highest risk
Loss of revenue and/or market share
Improve climate resilience of critical network infrastructure
Disruption to business continuity, increased operating costs
Engage suppliers to promote actions to strengthen their climate resilience, and improve supply chain resilience, for example through diversification of suppliers Continue to roll out energy efficiency programmes to optimise energy use Improve transparency and disclosure of ESG data and climate transition plans to meet stakeholder expectations Continue to roll out energy efficiency programmes to minimise risk exposure. Increase electricity procured through long-term purchase power agreements (to provide greater certainty on energy costs) Transition our business to net zero in our full value chain (Scope 1, 2 and 3) by 2040 to minimise risk exposure. Engage with policymakers to advocate for appropriate carbon regulation and fiscal measures Continue to roll out energy efficiency programmes to minimise risk exposure. Engage with policymakers to advocate for appropriate energy efficiency regulation and fiscal measures Engage partners in our value chain to promote alignment of carbon targets and actions, including energy efficiency improvements Integration of climate impact and carbon enablement into design of products and services Continued integration of ESG (including carbon footprint) into supplier procurement processes
Increasing operating costs
Transition risks
Loss of revenue and/or market share
Rising price of energy (renewable and non-renewable)
Increasing operating costs
Emerging carbon regulations and carbon taxation Increasing operating costs
Changing mandates and regulations over infrastructure energy efficiency Third-party dependency impacting our ability to meet carbon targets and improve efficiencies
Increasing capital costs
Loss of revenue and/or market share
Opportunities
Development of new product lines enabling customers to better manage climate-related impacts
Increase in revenue and/or market share
Reduced costs through sustainable procurement
Reduced operating and capital costs
Short-term ( impact could be felt in the next 0-3 years) Medium-term (impact could be felt in the next 3-5 years) Long to very long-term (impact could be felt in the next 5-28 years)
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Strategy continued
Figure 5 Transition risk impact on Vodafone by time horizon and climate scenario Our climate scenarios
Our latest full scenario analysis was conducted in 2020, covering both physical and transition risks using a primarily high-level qualitative approach. Figures 5, 6 and 7 outline the results. We intend to update our scenario analysis to bring it in line with our revised list of material risks and opportunities, and time-horizons, as shown in Figure 4. As a regulated technology-based business that is highly dependent on energy, we could be significantly affected by changes in regulations and market trends (particularly energy prices) as society and the economy transition to a low-carbon world. Our 2020 scenario analysis highlighted carbon taxation, energy regulation and climate litigation (in the event of failing to meet our net zero targets) as the greatest transition risks. These risks are most prevalent under our Scenario 1 (Early policy action: Smooth transition) and Scenario 2 (Late policy action: Disruptive transition) and given the nature of transition risks, least prevalent under Scenario 3 (No policy action: Business as usual). Our most recent review of climate risks through a high-level qualitative survey and discussions with the subject matter experts across FY23 indicates that carbon taxation and changes in energy market regulation and prices remain of highest concern to our internal stakeholders, with litigation risks considered to be less pronounced and longer term. We continue to monitor policy and regulatory trends relating to energy efficiency and storage, and cross-border carbon pricing, to understand potential impacts on the telecommunications sector.
Read more on page 16 1. Early policy action: Smooth transition
<2 °C
2. Late policy action:
<2 °C 3. No policy action: Business as usual
<3 °C
Disruptive transition
Potential impact across time horizons
Short-term (2020-2025)
Medium-term (2025-2035)
Long-term (2035-2050)
Climate factor
Risk
Scenario
Risk: Transition
Consumer preferences Loss of customers
1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3
Temperature
Cooling utilities consumption
Offsets
Emissions offset cost
Litigation
Climate litigation
Carbon taxation
Carbon taxation
Regulation
Energy efficiency regulation
Please note the information on this page Is based on the high-level scenario analysis conducted In FY21.
Increasing magnitude of potential impact of risk before mitigation activities
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Figure 6 Physical risk impact on Vodafone by time horizon and climate scenario Our climate scenarios Strategy continued
We are a large owner and operator of telecommunications infrastructure across the markets we operate in. This increases our exposure to the physical risks of climate change due to the increased risk of asset damage or loss. As part of our climate impact identification and materiality assessment work, we identified the key climate drivers most likely to impact our assets and infrastructure. In contrast to transition risks, physical risks are most severe under Scenario 3 (No policy action: Business as usual) given this scenario sees a world where warming exceeds a 3°C threshold. Based on the latest scientific studies, we know this is the scenario under which physical climate-related events will be more frequent and severe, therefore increasing the impact on Vodafone. However, we still observe some impacts of physical climate risk at a 1.5°C-2°C level of warming under Scenario 1 (Early policy action: Smooth transition) and Scenario 2 (Late policy action: Disruptive transition). Physical risks would also have a significantly bigger impact on our business in the long term compared to short term, as the levels of warming rise regardless of the scenario. Building on the full scenario analysis results outlined above, we conducted a high-level quantitative assessment of physical climate-related risks in 2022 (as shown in Figure 3). Consistent with our 2020 scenario analysis, it also found that these physical risks could materialise in any future scenario, but are most pronounced in scenarios with late or no policy action.
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Please note the information on this page Is based on the high-level scenario analysis conducted In FY21.
Increasing magnitude of potential impact of risk before mitigation activities
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Figure 7 Opportunity impact on Vodafone by time horizon and climate scenario Our climate scenarios Strategy continued
In 2020, we identified three key opportunities for our business relating to climate change. These opportunities are enabled by the transition to a low-carbon economy and therefore the potential positive impact is higher under Scenario 1 (Early policy action: Smooth transition) and Scenario 2 (Late policy action: Disruptive transition). We continue to communicate and engage with investors on the ESG strategy through our comprehensive ESG reporting suite (Annual Report, ESG Addendum, TCFD Report, press releases and website), as well as direct engagement at meetings, roadshows and conferences. Vodafone already performs well against external ESG benchmarks used by investors, including but not limited to CDP. However we continue to focus on ensuring our ESG strategy and the impact it has on our financial performance is well understood. We recognise that the availability and cost of capital provided by investors is, in part, dependent on our ESG performance.
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Increasing magnitude of potential impact of opportunity
Please note the information on this page Is based on the high-level scenario analysis conducted In FY21.
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Building climate resilience into our business strategy Given the uncertainty of the transition to a low-carbon economy and the temperature increase limits achieved globally, the results of the scenario analysis, summarised in Figures 5, 6 and 7, enable us to better understand and build resilience to prepare for the potential worst-case impacts of climate change. From our analysis we know that transition risks could potentially be most significant under Scenario 1 (Early policy action: Smooth transition) and Scenario 2 (Late policy action: Disruptive transition) though there are differences in their timings and in the materiality of financial impacts. On the other hand, Scenario 3 (No policy action: Business as usual) could have the biggest financial impact due to the more severe physical climate-related risks. In FY22, we built on our previous climate scenario work and considered our resilience against key climate-related risks and opportunities. We engaged relevant stakeholders from across the business to understand the current processes and policies in place which enable us to mitigate and/or monitor climate-related risks and capture climate-related opportunities. For each material risk and opportunity, we mapped the current controls in place and the strength of those controls. Overall, we have mitigation actions in place for all identified key risks, which we are continuing to integrate into our business strategy and financial planning to build our climate resilience. Our current financial planning period extends out to three years, enabling risk mitigation actions for our short-term climate-related risks (0-3 years) to be incorporated. Our financial planning process incorporates the allocation of capital for operations, which includes the purchase of new or replacement equipment. Decisions in this area are increasingly considering climate-related risks and opportunities such as energy efficiency or the potential to reduce our carbon footprint. Whilst longer term climate-related risks (5-28 years) are not captured as part of our financial planning process, we identify and monitor them so that we have a view of how our business could be impacted as the world moves towards net zero by 2050.
Resilience to physical risks We have controls in place across the business which build resilience against the impacts of physical climate risks. These are centred on damage to our infrastructure and disruption to network services. We are continually improving climate resilience of our physical infrastructure to help us adapt to the warming climate and mitigate exposure to physical risks. Mitigation measures are built into the key stages of each asset’s lifecycle, from acquisition to maintenance, and cover climate adaptation as well as damage response. During the acquisition of assets, including buildings and network equipment, we have policies and guidance in place to incorporate the assessment of environmental risks. Our internal technology resilience policy also requires each asset to go through a physical risk assessment on a yearly basis, which also includes evaluating environmental risks. We also have reactive measures related to asset maintenance in place, such as processes and teams dedicated to disaster recovery and business continuity. Lastly, we have insurance policies designed to mitigate the financial impact of physical risks, which cover claims on asset loss and damage.
Resilience to transition risks We also have controls in place across the business which build resilience against transition climate-related risks. In 2020 we set an approved Science-Based Target to reduce our own emissions (Scope 1 and 2) to net zero by 2030, in line with reductions required to keep warming to 1.5°C. This supports our 2040 target to achieve net zero emissions across the full value chain (scope 1,2 and 3). These targets are approved by the Board and sit at the centre of our Planet strategy. Transitioning our business model to become net zero by 2040 will help to minimise our exposure to certain transition risks. If the transition to a low-carbon society is achieved, we can expect this to be driven at least in part by significant changes in policy and regulation that could impact our business model. Our public affairs, legal and tax teams across the Group, as well as in local markets, monitor any new or emerging climate-related regulation. We actively engage in energy policy-making processes both bilaterally and together with others through industry forums to understand, prepare for and respond to changing policy and regulation.
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While some transition risks may only impact us in the medium to long term, volatility in the energy market is a short-term risk that we have been actively managing. Actions to improve energy efficiency and limit exposure to energy price volatility are embedded into our current business strategy and financial plans. We have consistently invested in energy efficiency programmes and have increased this investment over the last year in response to energy price volatility. We have dedicated energy teams within our markets to monitor and achieve energy reductions. We have also implemented processes to ensure that we regularly and proactively review physical site assessments and upgrade our infrastructure to ensure energy efficiencies are maintained. Finally, we are actively increasing the proportion of renewable electricity purchased through power purchase agreements (‘PPAs’) as part of our energy procurement strategy to limit our exposure to future energy price volatility. We communicate and report clearly and transparently on our ambitious climate strategy, to manage our exposure to reputational risks such as greenwashing. This year we strengthened governance structures and processes to manage legal and reputational risks related to potentially misleading environmental claims. Lastly, we have multiple ways of tracking consumer preferences and investor sentiment in relation to sustainability and take action based on the feedback when appropriate.
Opportunities Our 2020 analysis identified three broad areas of climate-related opportunity for our business, relating to increasing market valuation, access to sustainable financing and improved product efficiency. These opportunities are enabled by the transition to a low-carbon economy and therefore the potential positive impact is the highest under Scenario 1 (Early policy action: Smooth transition) and Scenario 2 (Late policy action: Disruptive transition). In 2022, our review highlighted two specific opportunities that we could exploit that would underpin these. We identified that sustainable procurement could give us the opportunity to reduce costs, on the basis that this will limit our exposure to climate risks in our supply chain. However, the most significant opportunity relates to developing new product lines to enable our customers (particularly enterprise customers) to decarbonise, and helping to deliver a twin digital and green transformation through our digital networks and technologies. Our connectivity solutions can help our customers and wider society to achieve energy and resource efficiency improvements through the use of Internet of Things (‘IoT’) and connected solutions. We have already begun to develop and promote IoT products and services that enable carbon savings, such as vehicle telematics systems, remote patient monitoring in healthcare and precision agriculture solutions. There is further potential for our products, both IoT and wider digital connectivity solutions, to accelerate the green digital transition, opening up potentially significant markets and growing top-line revenue.
Next steps in our TCFD programme: We believe that the actions implemented and integrated into our future business plans adequately build climate resilience into our business strategy. However, we recognise the need to continue developing our understanding and quantification of climate risks, opportunities and mitigations and to further integrate these into financial planning. We remain committed to doing this as part of our ongoing climate journey. As a next step, we are developing our first climate transition plan outlining our key areas for action, collaboration, and advocacy to achieve our goal of net zero emissions across our full value chain by 2040. Our climate transition plan will include further definition of the mitigating actions for our medium- and long-term climate-related risks and opportunities, so that the associated resources and investment can be more explicitly integrated into our business and financial planning processes. We also intend to update our full scenario analysis to bring it in line with our revised list of material risks and opportunities, and related time horizons,.
Read more about carbon enablement and our green digital solutions in our Annual Report
We remain committed to working closely with other information and communication sector (ICT) companies to drive investment in digital solutions which help mitigate climate change.
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