According to the definition issued by the Task Force on Climate-related Financial Disclosures (TCFD), climate risks include the following physical risks.
Physical risks Physical climate risks are divided into acute and chronic risks. The potential impact of climate change also depends heavily on global developments such as demographic change, economic growth, and efforts to rapidly reduce the CO₂ concentration in the atmosphere. In its analysis of these physical climate risks, Heidelberg Materials has therefore considered both the current risk potentials and – for the periods to 2030, 2040, and 2050 – the recognised scenarios (Shared Socio-Economic Pathways) SSP1 to SSP5 of the Intergovernmental Panel on Climate Change (IPCC). These SSP scenarios depict possible ways in which climate change could unfold and also include socio-economic aspects such as projected population growth.
The development pathways that were previously used, which were primarily based on the concentration of greenhouse gases in the atmosphere (Representative Concentration Pathways, RCP), have also been incorporated into these scenarios and expanded. The SSP scenarios cover both optimistic and pessimistic variations. While the SSP1 scenario can be considered consistent with achieving the Paris Agreement’s 1.5 °C target, the effects of climate change are more severe in the other scenarios and the greenhouse gas concentration also increases. SSP5 corresponds to a “worst case” scenario. One industry-specific risk for Heidelberg Materials is the dependence of construction activities on weather conditions. Harsh winters with extremely low temperatures or high precipitation throughout the year can have a short-term negative effect on construction activity, with direct consequences for our revenue and operating performance.
In general, there are significant geographical variations in climate risks. The impact of extreme weather scenarios, such as floods or droughts, can lead to damage to our production sites, interrupt the supply to our customers, or have adverse effects on the supply of upstream products to our operating units. In recent years, for example, prolonged dry periods in Western Europe have caused low water levels, making it difficult to deliver raw materials by water. At the same time, flooding in Australia, for example, have led to interruptions in production and supply. We respond to weather scenarios like these in various ways, including by using water-saving production techniques and by optimising our wastewater management. Nevertheless, river flooding is currently a major concern for our business in this connection.
These actual effects are also reflected in our overall risk analysis. Precipitation stress and heat stress are the principal chronic climate risks, while river flooding is the most significant acute risk. For the period up to 2030, the picture remains largely unchanged, but the risk exposure to drought increases significantly.
Depending on the scenarios considered, the proportion of locations subject to climate risks will continue to rise over the periods up to 2040 and 2050. For drought stress, for example, there are significant differences between the moderate SSP2 scenario and the SSP5 scenario, which is based on the continued use of fossil fuels. The modelling indicates that our risk exposure would double. Similar developments would also be forecast for other chronic climate risks such as heat stress and precipitation stress. According to the scenarios, our locations in Asia and Africa in particular would suffer from drought and heat if greenhouse gas concentrations increase, while more northerly regions, such as North America and Europe, would be more severely affected by rainfall stress.
If we analyse the periods up to 2040 and 2050 for acute risks such as tropical cyclones and river flooding, these remain largely stable. While the former naturally occur in Africa, Asia, and Australia in particular, the risk of river flooding tends to affect the Northern Hemisphere. The relative stability of the acute risks also means that the effects of climate change are already impacting us today.
As the risks are already significant, we began a more in-depth analysis in 2022 and, based on the risk exposure and strategic importance, identified around 100 plants, which are being examined in detail. For this purpose, further risks were included in the modelling and made available to the plants. They have verified the findings, compared them with their own experiences, and are now tasked with developing location-specific adaptation measures for the critical risks, including necessary investment plans. With this analysis, we have also begun to quantify the specific financial impact on our locations. We aim to develop this analysis further, utilise it more intensively, and integrate it into accounting processes in the future.