Climate-related risks and opportunities the organisation has identified over the short, medium, and long term.
As part of our business processes, we identify climate-related risks and opportunities, assessing their likelihood and quantifying their potential financial and non-financial impacts and time horizon. Those risks with a higher impact are prioritised for action by the board.
We consider climate-related issues within the time horizons used in our risk management process (see table). Risks and opportunities feed into our financial planning to the extent we expect them to impact our 3 year strategic plan. Beyond that, we consider medium to long-term risks and opportunities when formulating the Group's overall strategy.
In line with our risk management process and assessment of the Group's principal risks, only high and medium risks are considered sufficiently significant for disclosure in the annual report. The scoring of each risk is determined based on the scoring of the risk within the Group's risk register. This scoring considers the potential impact and likelihood associated with the crystallisation of each risk (the assessment of impact takes into account both financial and reputational issues).
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| Short-term | < 5 years | Aligns to how we assess the Group's principal risks and viability statement. |
| Medium-term | 5 – 10 years | Aligns to longer-term projects with risks driven by government policy, infrastructure needs and market conditions. |
| Long-term | > 10 years | Factors that could impact the Group's ability to achieve its strategic goals. |
Climate-related transition and physical risks have been assessed as an overall low risk to the Group. However, the risk of being able to demonstrate that we are a 'sustainable and responsible business' to meet stakeholder expectations is identified as a medium risk in isolation and is therefore included in our principal risks (see How we Manage Risks for further details).
Our approach to ESG risk
The Group's process of identifying and assessing climate-related risks and opportunities is embedded in the Group's existing risk management process and is fully aligned with our three lines of defence model (see How we Manage Risks for more details).
We monitor and identify climate and other sustainability-related risks in our sustainability risk register by assessing their likelihood and quantifying their potential financial, non-financial impacts and the time horizons over which they may occur. These are reviewed quarterly to ensure that material risks are identified, escalated appropriately and managed effectively.
Both transitional and physical risks can be impacted as a result of climate change and associated trends. The sustainability risk committee considers transition risks that may stem from the Group's transition to a Net Zero steel industry, such as through regulatory, legislative or technological changes, and thereafter mitigates them accordingly. Alternately, physical risks arise from an increased frequency of severe weather events, such as flooding or cyclones, for example.
The table on Responsible business strategy summarise key climate-related risks (transition and physical), as well as opportunities that have been identified during our sustainability risk review process; these risks are considered as having the greatest impact on the business in the short, medium, and long-term.
The tables below summarise the key climate-related risks (transition and physical) and opportunities identified as part of our sustainability risk review process that are considered to have the greatest impact on the business in the short, medium and long term.
| Climate Related Risks |
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| Climate risk | Classification | Risk description | Potential impacts to the business | Time horizon | | Assessment of likelihood | Assessment of financial impact | Current/future mitigation |
| Transition | Policy and legal | Failure to comply with climate-related legislation by not meeting targets or reporting requirements. | - Loss of position as market leader and reputational damage.
- Loss of opportunities within our market sectors.
- Possible fines and penalties imposed.
| Short-term
(<5 years) | | Unlikely | Low | - Strong controls and governance on climate-related reporting to the board.
- Regular training and education on climate change matters to stay ahead of any legislative changes.
- Engage external specialists, where appropriate, to provide advice on current sustainability risk management processes and upcoming or potential changes to climate-related legislation.
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| Reputation | Failure to comply with climate-related stakeholder expectations leading to loss of position as market leader and lost opportunities. | - Loss of position as market leader and reputational damage.
- Loss of opportunities within our market sectors.
- Negative share price impact.
| Short-term
(<5 years) | | Possible | Moderate | - Regular engagement with all stakeholders, promoting open and transparent communication.
- Strong controls and governance on climate-related reporting to the board.
- This risk has been modelled as part of our scenario analysis – see Building a Responsible and Sustainable Business for further detail.
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| Policy and legal | Failure to meet operational emissions reduction targets or increased costs due to offset costs. | - Possible fines and penalties imposed, including carbon taxes.
- Carbon offsetting costs could increase if the Group needs to purchase additional offsets where we fail to reduce our GHG emissions.
- Offsetting prices will increase as demand for these initiatives will increase.
| Medium-term
(5-10 years) | | Unlikely | Low | - Our Group's Net Zero roadmap and sustainability framework continue be embedded in our businesses processes and procedures to ensure our ambition is achieved.
- Regular monitoring and reporting of GHG to the board.
- Regular monitoring of offsetting prices and close monitoring of new development for permanent carbon removals.
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| Market | Steel becomes unsustainable due to high carbon content, or an over demand for low carbon steel making it unaffordable and projects being cancelled. | - Shortage of material availability resulting in project delays or cancellations.
- Significant fluctuations in steel prices linked to procured carbon.
- Pressure from customers to reduce emissions of materials as well as emissions associated with distribution and construction activities
- More stringent regulation for construction materials and products.
- Increased R&D, design, IT and training costs associated with developing new technology to create innovative projects.
| Medium-term
(5-10 years) | | Unlikely | Significant | - We continue to maintain our strong relationships with our supply chain providers.
- We have discussed with our key suppliers their own strategies to become Net Zero and undertaken research into low carbon alternatives.
- Contributing to the SteelZero network demonstrates our commitment to procure 100 per cent Net Zero steel by 2050, with specific interim targets set for 2030.
- Provision of training for low-carbon design and new technologies.
- Engaging in discussions on climate-related matters early on in the project life cycle so we can ensure our customers' expectations are fully understood and achieved.
- Performing regular material price sensitivity assessments and considering contingency plans for procurement.
- This risk has been modelled as part of our scenario analysis – see pages Building a Responsible and Sustainable Business for further detail
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| Physical | Acute | Operational disruption/reduced capacity due to extreme weather event, e.g. flooding or wind damage. | - Project delays incurred due to unsafe working conditions on site and disruption to deliveries of materials to our factories.
- Damage to construction sites and equipment.
- Design and procurement challenges to deliver a project to withstand extreme weather effects.
- Increasing difficulty in obtaining insurance in locations of extreme weather conditions.
| Long-term
(>10 years) | | Possible | Low | - Monitoring of weather forecasts to ensure employee safety and early steps taken to mitigate potential disruption to deliveries.
- Detailed risk reviews of project sites in areas of extreme weather or located close to waterways. It is commonplace to agree allowances in our construction programmes to accommodate potential adverse weather conditions, for example the impact of wind on being able to lift significant steel structures.
- Review of insurance policies and arrangements.
- This risk has been modelled as part of our scenario analysis – see Building a Responsible and Sustainable Businessfor further detail.
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| Chronic | Operational disruption/reduced capacity due to increased frequency of extreme weather, e.g. drought. | - Project delays incurred due to unsafe working conditions on site and disruption to deliveries of materials to our factories.
- Damage to construction sites and equipment.
- Design and procurement challenges to deliver a project to withstand extreme weather effects.
- Increasing difficulty in obtaining insurance in locations of extreme weather conditions.
| Long-term
(>10 years) | | Unlikely | Negligible | - Monitoring of weather forecasts to ensure employee safety and early steps taken to mitigate potential disruption to deliveries.
- Detailed risk reviews of project sites in areas of extreme weather or located close to waterways.
- Review of insurance policies and arrangements.
- This risk has been modelled as part of our scenario analysis – see Building a Responsible and Sustainable Business for further detail
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| CLIMATE RELATED OPPORTUNITIES |
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| Opportunity | Classification | Description | Strategy to realise opportunity | Time horizon |
| Green revenue streams | Market | Identify new and increase existing revenue streams from green infrastructure and low carbon projects.
The Group is well-placed to meet the demand for infrastructure which can mitigate the impacts of climate change and deliver energy security. These requirements dictate a significant transition in national energy infrastructure including renewable electricity generation and storage, nuclear power (new build and decommissioning) and several other new energy supply initiatives. We also expect to see further projects aimed at carbon reduction in transport, such as the electrification of the UK rail network.
Other projects in support of a low-carbon economy include battery plants (to facilitate the switch to electric cars), energy efficient buildings and manufacturing facilities for renewable energy. | We will continue to collaborate with customers and contractors to realise innovative ways of construction and maintain our position as market leader for structural steel.
Building and maintaining relationships, enhanced collaboration and dialogue with new and existing potential customers will allow us to continue to be a first-choice contractor for new and innovative projects.
See Our Strategy for further details. | Long-term (>10 years) |
| Renewable energy | Energy source | Continuing the transition from using gas oil and natural gas to renewable low-carbon energy sources could give rise to operational and supply chain efficiencies and cost reductions. | We have made good progress to date, increasing the procurement of renewable electricity. In 2023, 94 per cent of our total purchased and consumed energy was from green tariffs.
We have one remaining facility to switch to green electricity in 2024 and research the availability of other renewable energy sources for heating and power as part of our ESOS improvement works. | Short-term (<5 years) |
| Research and development | Products and services | With the increasing focus on climate-related matters as the UK, and the world, accelerates its efforts to decarbonise in line with the Paris Agreement, we expect to see a change in the requirements of our customers to build projects that reduce their carbon emissions.
Research and development into products and processes will help us to provide innovative solutions that meet the complex and changing needs of our customers. | One of our strategic objectives is to continue to invest in climate-related research and development to identify new engineering techniques, innovative technologies and source steel with low embodied carbon and to re-use steel to assist our customers to minimise the lifecycle carbon emissions of their projects. The implementation of Project Horizon in the year is a step forward in the requirement to achieving this. | Short-term (<5 years) |
Climate scenario analysis ('CSA')
During the year, we conducted a CSA in line with TCFD guidance. The CSA focussed on how climate-related risks and opportunities, identified through our risk assessment process described on Building a Responsible and Sustainable Business, may change in a range of future scenarios and considers the resultant financial impacts arising as a result of mitigations required. We expect to provide more detailed quantitative disclosures on the financial impact in our 2024 annual report.
Our assessment prioritised risks considered to have the greatest impact on the business in the short, medium and long-term (as defined in the table on Building a Responsible and Sustainable Business). We anticipate that our analysis will expand over time as our understanding of the impacts of climate-related risks evolve and as external data on the potential impacts of climate change develops.
The areas assessed relate to the following primary risk drivers:
The frequency and severity of extreme physical weather events and their impact on assets, projects and supply chains,
Stakeholder expectations and the delivery of low carbon projects, and
The steel market within the low carbon transition and Severfield's procurement strategy.
The parameters, assumptions and data used to support our CSA are taken from various accredited sources that are summarised below. The CSA models incorporate a range of different temperature outcomes to 2100, including a scenario of less than 2°C.
| Severfield PLC climate scenario | Low emissions | Medium emissions | High emissions |
| 1. Physical risk assessment |
| Relative Concentration Pathway (RCP)1 | RCP2.6 | RCP4.5 | RCP8.5 |
| Estimated 2100 warming projection | 1.8°C | 2.4°C | 4.3°C |
| 2. Stakeholder expectations and the delivery of low carbon projects |
| Carbon offset market scenario (Bloomberg NEF)2 | Regulated (carbon offset market is regulated which limits supply) | Hybrid (combination of regulated and voluntary scenarios) | Voluntary (no regulation over carbon market) |
| 3. The Steel market within the low carbon transition |
| Mission Possible Partnership ('MPP') scenario3 | Carbon cost (1.5°C aligned)4 | Technology moratorium5 | Baseline6 |
| Carbon pricing | $0/tCO2 in 2023 rising linearly to $200/tCO2 in 2050 | None | None |
| Technology constraints | None | Only near-zero emissions technologies permitted from 2030 onward | None |
1 RCP uses economic, social and physical assumptions within a set of scenarios to model possible future climate evolution. They are published by the MET Office and adopted by the Intergovernmental Panel on Climate Change (‘IPCC’). The RCPs can be represented by the levels of temperature change that can be used in conjunction with flood projection models.
2 Bloomberg NEF is a strategic research provider covering global commodity markets and the technologies driving the transition to a low-carbon economy.
3 The Mission Possible Partnership (‘MPP’) is an alliance of climate leaders focussed on decarbonising specific industries, including steel. They have sector transition strategies that set out illustrative scenarios to achieve Net Zero by 2050.
4 The Carbon Cost scenario illustrates how the steel sector might decarbonise if coordinated action to support low-CO2 steelmaking takes hold this decade. This scenario assumes that, at each major investment decision, the steel asset switches to whichever technology offers the lowest total cost of ownership (‘TCO’).
5 The Technology Moratorium scenario takes an alternative approach by confining investments to near-zero-emissions technologies from 2030 onwards to reach Net Zero. As with the Carbon Cost scenario, the steel asset switches to whichever technology offers the lowest TCO at each major investment decision.
6 Baseline scenario: to highlight the consequences of inaction, a reference case is modelled in which a steel asset switches to the technology with the lowest TCO at each major investment decision, without a Net Zero constraint.
The assessment considers 4 time points 2025, 2030, 2040, 2050 which encompass the short, medium and long-term time horizons set out on Building a Responsible and Sustainable Business.
Impact of physical climate risk on assets, projects and supply chains
| Driver for assumptions | Risk profile and financial impact | Strategic resilience and planned mitigations |
Long-term flood risk modelling (within an RCP 8.5 scenario – see previous page) was undertaken to identify our UK operations with the highest flood risks.
A sample of assets was further assessed to consider the most extreme risks arising from flood, sea level rise, cyclone, heatwave, wildfire, and water stress (in an RCP8.5 / SSP51 scenario – see previous page).
The modelling uses General Circulation Models based on the latest international modelling efforts (CMIP6), high-resolution historical observations from satellites and a range of other techniques to provide the greatest degree of accuracy. | Climate risk relating to the assets sampled, and the associated financial risk of our assets does not significantly change to 2050 based on our current modelling approach.
We have assessed potential financial impacts arising as a result of operational delays caused by localised flooding to access roads, based on historic flood impact events. These have been mitigated by site improvements to prevent flooding at both Dalton and Enniskillen. In addition, such is the economic importance of the sites, climate risks are likely to be further mitigated by future infrastructure investment. | Our current and near-term insurance policies and arrangements mitigate against the risk of asset damage. Regular discussion with insurers enables us to identify near-term localised risk and to implement measures to minimise risk impacts.
Historic flood events and localised flood mitigation works are monitored to assess the changing risk profile for our operations and to understand risk tolerance for potential financial impacts.
Project risk mitigations are discussed in the risks and opportunities table on Building a Responsible and Sustainable Business
We will continue to monitor physical climate impacts within our wider risk management approach. |
1 Shared Socioeconomic Pathways’ (‘SSPs’) look at five (population, economic growth, education, urbanisation and the rate of technological development) different ways in which the world might evolve in the absence of climate policy and how different levels of climate change mitigation could be achieved when the mitigation targets of RCPs are combined with the SSPs.
Stakeholder expectations and the delivery of low carbon projects
| Driver for assumptions | Risk profile and financial impact | Strategic resilience and planned mitigations |
The steel sector is on a trajectory to decarbonise, but stakeholder expectations and demand may outpace the availability of low carbon steel. Whilst our long-term transition plan focuses on a range of measures to achieve decarbonisation (see our Net Zero plan on Building a Responsible and Sustainable Business), in the shorter-term, we have assumed carbon offsets will be needed to meet stakeholder expectations.
The analysis considers our scope 3 procured emissions, customer demand fluctuations, and market expectations on carbon offset prices in a range of scenarios. | The price of carbon offsets could significantly increase in a scenario where the carbon offset supply is limited to removal offsets that store or sequester carbon, rather than avoiding emissions that would otherwise occur.
Due to high demand, supply pressures are likely to boost market prices.
The impact on Severfield depends significantly on levels of customer demand, decarbonisation of the sector as a whole, and our procurement strategy, and will be explored further in future periods as we seek to reduce dependence on the use of offsets and drive clear progress toward decarbonisation. | Our ongoing conversations with customers and our supply chain provide meaningful insight into customer-side demands for low carbon projects, and supply side trajectories toward increased availability of low carbon steel.
Our involvement with SteelZero and wider industry and government collaborations provide increased awareness of the challenges of the steel sector as a whole and how these could be overcome. This deeper understanding will feed into our Net Zero plans.
We are investing in R&D to optimise production processes and are exploring methods to maximise circularity of our materials and the re-use of steel, enhancing our role in reducing the carbon content of delivered projects. We are also focusing on our own operational emissions within our Net Zero roadmap. |
The steel market within the low carbon transition
| Driver for assumptions | Risk profile and financial impact | Strategic resilience and planned mitigations |
The current (raw material) steel-making process is energy-intensive and largely relies on the combustion of fossil fuels, creating significant CO2 emissions (Blast Furnace). Electric Arc Furnaces, however, typically use recycled or scrap steel and melt it through the use of an 'electric arc'. The use of green electricity in this process would therefore make zero-carbon steel.
Additional technologies will be required to achieve full decarbonisation of the sector, including processes which replace natural gas with green hydrogen, incorporate an element of carbon capture, and replace pulverised coal with high-carbon biomass sources.
The Mission Possible Partnership ('MPP') has conducted extensive scenario analysis to assess possible trajectories for the steel sector to reach Net Zero by 2050, and this information has been used to identify and assess the implications for our own procurement strategy and associated financial impacts. | In a scenario where the cost of steel is highly impacted by the price of carbon, the cost of producing traditional carbon intensive steel is likely to significantly increase to 2050. If our procurement strategy remains constant, there could be increase in procurement spend over time toward 2050.
It is likely that novel and nascent technologies will disrupt incumbent technologies, as the cost of zero carbon electricity and hydrogen declines over the coming decade.
Assuming that we adopt a procurement strategy that evolves with the best available technologies, the financial impact will be the most significant within the 'carbon cost' scenario but is unlikely to result in a significant increase in deliverable project prices.
Within the existing economic landscape, the impact of fluctuations in energy prices and the conflict in Ukraine have put pressure on steel prices globally. In addition, market demand for nascent technology may drive market fluctuations in steel prices. These factors combined place significant uncertainty over the projected scenarios modelled in a 'low carbon' transition. | In addition to our previous comments, which reflect our ongoing collaborative efforts and R&D investment into achieving Net Zero, we are signatories to SteelZero which means that we are committed to procuring, specifying, or stocking 100 per cent Net Zero steel by 2050 (see People for details on SteelZero).
We regularly assess how our strategic partners are working toward meeting these aims and are in the process of developing an engagement plan, to enhance oversight of our progress toward achieving Net Zero throughout the value chain.
Our near-term market price modelling assesses how the market price of steel may fluctuate, as a result of a range of events, and our pricing and contracting strategies ensures that we are protected against fluctuations in the price of steel, as evidenced by our resilience in the face of recent economic and political events. |
Metrics and targets
We measure a wide range of metrics relating to energy and carbon, which can be found on Planet. We also annually report our detailed carbon ambitions and targets within CDP Climate disclosure which can be found on Severfield's website. We have undertaken a gap analysis to support full and transparent reporting to support our climate-resilience journey, taking into account cross-industry metrics as identified by TCFD, and industry specific metrics as outlined by SASB and supported by the ISSB through IFRS S2. This is an area of focus for the next reporting period.