Climate risks and opportunities
We are working to implement the recommendations of the Task Force for Climate-related Financial Disclosures (TCFD). This means ensuring we have appropriate governance, risk management, strategy and metrics to address the impacts of climate change on our business.
Strategy and metrics
Royal Mail is undergoing a major transformation programme, covering every aspect of our operations, namely: collections, processing, logistics, sorting and delivery. Potential climate change impacts have been considered as part of this programme. For example, we are investing in new zero emissions vehicles to deliver sustainable reductions in emissions, while ensuring that we continue to meet our customers’ expectations.
This year, we have developed a new environment strategy for our Royal Mail UK business. Our strategy includes the following ambitions:
- Delivering net zero
- Clean air
- Responsible consumption
Our long-term carbon reduction target aligns to the Paris Agreement. This aims to limit global temperature increase to well below 2 degrees Celsius. See pages 48-51 for more information about our strategy to reduce building and fleet emissions, as well as our use of resources.
The Board oversees the management of climate-related opportunities and risks. It is supported by the Audit & Risk Committee of the Board and the Risk Management Committee. The management of climate-related risk is integrated into the Company’s overarching risk management framework. Our Environment Policy is published at www.royalmailgroup.com/en/responsibility/policies-and-reports/
Supporting customers affected by adverse weather
As a condition of the Universal Service Obligation, Royal Mail is required to deliver to every address, six days a week. In cases where adverse weather conditions or flooding make this impossible for us to do safely, or where our customers are not able to return to their homes, we offer our customers the option of collecting from their local delivering office, or their mail being delivered to an alternative, unaffected address in the area.
‘Environment and sustainability’ is one of our principal risks, given its major significance internally and externally. The underlying Environment Risk and Opportunity Register is maintained by the Environment Governance Board. In line with TCFD recommendations, we consider both physical climate impacts; such as flooding, and transitional risks; such as regulatory actions designed to limit global warming. We also consider potential opportunities presented by environmental issues such as climate change.
The Risk Management Committee reviews business units’ risk registers on a regular basis. It ensures risks on the Company’s consolidated Environment Risk and Opportunity Register are reflected in business units risk registers, as appropriate. Risks may be owned by several different units, depending on their salience. As such, they may appear on multiple units’ registers.
A standard methodology, based on probability and potential impact, is used to rank environmental risks based on their significance and materiality. Where climate-related risks and opportunities are identified, individual business units are required to factor the actual and potential impacts into their strategy and financial planning, and develop mitigation plans as necessary. For example, relevant business units would be required to factor increasing stakeholder expectations for clean delivery methods – and related risks and opportunities – into their strategies.
Royal Mail is on a journey to quantify its climate risks and opportunities based on our operations, our locations and our legal obligations. In line with the recommendations from the TCFD, we plan to undertake a detailed scenario analysis in 2020-21 to better understand the financial impacts of risks and opportunities facing our business.
Our early view for key climate change risks and opportunities:
Our current view of risks and opportunities is set out in the table available here
P: Physical | T: Transitional | R: Risk | O: Opportunity
Determining the risks our business faces from climate change
In 2018-19 Royal Mail committed to implementing the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). We recognise climate change as one of the world’s biggest threats, and one which poses particular risks and opportunities for business. Identifying these risks and opportunities enables us to enhance the resilience of the business and take advantage of the opportunities that it may offer. We have continued to implement the TCFD recommendations including a review of our strategy and associated metrics and targets, and ensuring that we have appropriate governance and risk management processes in place.
The Board oversees the management of climate-related opportunities and risks. It is supported by the Risk Management Committee and the Audit and Risk Committee. The management of climate-related risk is integrated into the Company’s overarching risk management framework.
Environmental risk management
Environment and Sustainability is listed as one of the Group’s principal risks, given its major significance internally and externally.
The underlying Environment Risk and Opportunity Register is maintained by the business. In line with TCFD recommendations, we consider physical climate impacts, including flooding, transitional risks and regulatory actions designed to limit global warming. We also consider potential opportunities presented by environmental issues such as climate change.
Business units’ risk profiles are reviewed on a regular basis and inform the Group level environment risk as overseen by the Risk Management Committee. Environmental risks and opportunities captured at a Business Unit (BU) level are consolidated into the Environmental Risk and Opportunity Register and risks identified are reflected in BU risk profiles, as appropriate.
Where climate-related risks and opportunities are identified, individual BUs are required to factor the actual and potential impacts into their strategy and financial planning, and develop mitigation plans as necessary.
Further information on our risk management framework as well as the processes to identify, assess and manage risks can be found in our Annual Report and Financial Statements: www.royalmailgroup.com/en/investors/annual-reports/
Undertaking scenario analysis to understand our TCFD requirements.
We continue to determine our climate risks and opportunities based on our operations, our locations and our legal obligations.
During 2020-21 we worked with PwC to better understand how the potential long-term impacts of climate change could impact our business.
We have conducted a qualitative climate change risk and opportunity assessment to understand the different climate issues that could impact the business in the future under different scenarios.
In line with TCFD recommendations, we have also conducted a quantitative review of different climate scenarios from peer reviewed and publicly available third-party sources. These scenarios were from the Network for Greening the Financial System (NGFS) and are summarised below:
- Rapid scenario (1.5°C): A rapid transition to a global low-carbon economy. In this scenario transition risks are maximised and physical risks, although present are relatively low.
- Orderly scenario (<2°C): A long-term orderly transition to a low-carbon economy. Climate action policies are introduced early and become gradually more stringent. Physical risks are present but relatively low, and transition risks are moderate-high.
- Disorderly scenario (2-3°C): A sudden disorderly transition to a low-carbon economy. In this scenario climate policies are not introduced until 2030. Emissions reductions are sharper than in the orderly scenario to limit warming to the same target. Physical risks rise and transition risks are maximised.
- No transition scenario (>4°C): Failed transition to a low carbon economy. Only current policies are implemented, and Nationally Determined Contributions are not met. Emissions grow leading to severe physical risks and irreversible changes. There are limited transition risks associated.
We assessed the climate-related risks and opportunities with the highest potential to impact the business under the range of scenarios outlined below.
We are exposed to a number of risks associated with a shift to a low-carbon economy, in particular the introduction of a carbon tax which would increase the cost of running the large commercial vehicle fleet and property estate. The ban on the sale of petrol and diesel vehicles, and low emissions zones requiring alternative fuel vehicles may impact the business’ ability to continue holding older fleet. There is a risk this will lead to reputational damage if peers/competitors transition more successfully in the low-carbon economy and provide clean delivery mechanisms faster than the Group.
While we recognise these risks, the opportunity around the transition is also significant to the Group. We are playing a key role in delivering the low-carbon transition by investing in electric and other alternative fuel vehicles to meet increasing demand for clean delivery mechanisms and new products and services.
We recognise the risks arising from physical change in climate, in particular the potential impacts of extreme weather events and chronic changes in the physical environment which could impact our operations, our employees and our facilities and equipment. We already assess our sites for flood risk as part of our due diligence and business continuity processes, including the use of routing tools to divert mail. In addition, we have implemented a flood alert system across 700 of our sites to strengthen forecast capabilities to invoke business continuity arrangements.
During a recent extreme weather event our site in Worksop, UK was flooded. This event had a widespread impact on our network, and resulted in repair costs, adaptation investments, service delays and reductions in productivity. This is an example of the type of extreme weather events that are predicted to occur more frequently and at a higher intensity due to climate change.
Ensuring our people have the right equipment to deal with all weather conditions is an important element of our health and safety approach. We use a severe weather risk assessment approach to identify and manage extremes. We regularly review and adjust uniforms to ensure they are appropriate for changing weather conditions, for example snowshoe spikes for operations staff, and improved water resistance of uniforms.
We continue to analyse our climate risks and opportunities using the four scenarios outlined. We will explore the risks and opportunities identified in further detail, conducting more granular quantitative climate change scenario analysis to gain further insight into the potential materiality of these issues.