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We recognise the complexity and
urgency of climate change and consider the risks and opportunities that it
presents to the global economy and the role transport and our business can
play.
Risks and Opportunities
Dealing with
climate change is one of our main challenges and a key factor in our business
planning and decision making. We face physical challenges such as more severe
rainfall and temperature extremes, as well as transition challenges such as
shifts in policy, technology, customer and investor demands. Besides these
challenges, we also see opportunities in changing customer tastes for low
carbon options and strong government and regulatory backing for transport
decarbonisation and modal shift, which can benefit our business, environment
and society.
Policies
Our Group
Environment Policy governs our approach to the environment, including climate, and is applicable to all FirstGroup operations. In addition, our
various divisions also have their own environmental policies that are bespoke
to their operations and we have introduced environmental commitments into other
policies such as our Code of Ethics and Supplier Code of Conduct that outline
our expectations for employees and suppliers respectively, with both groups
required to sign annual attestations.
Group Environment Policy
Reporting
We were the
first UK transport operator to pledge our support towards the recommendations
of the Task Force on Climate-Related Financial Disclosures reporting since
2021. We also report to Carbon Disclosure Project (CDP) annually. This year we
are working on our first report to the Transition Plan Taskforce that will
outline our transition plans in more detail.
Scenario mapping
In FY 2022, we
collaborated with an expert consultancy to simulate potential physical and
transition challenges and opportunities for our business in the short, medium,
and long term, and to calculate cumulative Enterprise Value at Risk over a five
year span (2022 2027). Using a digital replica of FirstGroup, we simulated impacts
under five different climate scenarios, from a world where there is almost no
climate action and global temperatures rise by a disastrous 4°C, to a world
where there is quick transition to a low carbon economy and global temperature
rise is kept to 1.5°C above pre industrial levels.
Since our 2022
evaluation, we provide annual updates in the TCFD section of our annual report
to give updates what we are doing to keep lowering our carbon emissions and
enhance our climate adaptability across our operations.
Transition Risks
Our analysis of
transition risks considers potential impacts on our business from changes in
policy (such as carbon pricing), technology (additional capital expenditure
required to meet more stringent environmental standards), brand reputation
(customer expectations and FirstGroup’s environmental credentials and ability
to meet carbon reduction goals), and capital markets (investor expectations and
impact on funding access/costs).
Considering our
industry, we also anticipate increasing opportunities in the coming years to
offset some of these risks, mainly related to a faster modal shift driven by
customers’ growing climate awareness and stricter climate policy and market
stimuli. We are collaborating with our Bus and Rail divisions to analyse how
the speed at which we electrify our fleet and advance towards our net zero
targets could impact our potential to seize these opportunities. Updates on
these risks are published in our Annual Report.
Physical Risks
We evaluate
physical risks by looking at how acute climate events, such as more frequent
and more intense floods, storms, rainfall, heatwaves, and droughts, as well as
more chronic and long term changes such as rising sea levels and a global
increase in temperatures, could affect our business. These events could have
financial impacts ranging from operational disruptions and asset damage to
health and safety risks, insurance costs and revenue loss.
Our analysis
identified flooding as one of our most immediate, material risks. It was found
that the increased probability and magnitude of flooding could result in a
higher risk of connective infrastructure damage, affecting electricity supply
and digital connectivity. It could also cause more vehicle accidents and route
closures, and pose health and safety risks to our staff and customers. It could
also damage our depots and vehicles, leading to depreciation and stranded assets,
as well as impacting insurance costs and insurability of assets.
Due to this
increased risk we carried out a separate, in‑depth flood modelling exercise
covering riverine, surface water and coastal flooding. The model considered the
top 240 most critical assets owned, leased or managed by FirstGroup or our
subsidiary companies and assessed the maximum metres of flooding expected at
these locations over different timeframes. The purpose of this exercise was to
identify assets at high risk of flooding, assess potential financial impact and
strengthen mitigation measures going forward. The model showed that the
majority of FirstGroup owned assets have limited/low exposure to flood risks in
the short term.
Our assessments
also focused on potential impacts to assets that we own, lease or manage, but
our exposure to climate risks critically also depends on assets that are owned
and managed by third parties, such as rail tracks owned and managed by Network
Rail. We connect with key stakeholders across the rail industry, as part of a
TCFD working group convened by Network Rail, to start sharing our approach to
climate risks and facilitate closer collaboration on risk mitigation and
climate adaptation.
Economy-wide Transition
Considering our
business model and some of the critical interdependencies between us as a
public transport provider and local authorities, DfT, Network Rail and our
supply chain partners, a strong approach to decarbonisation, partnership and
advocacy is key in building strategy resilience and future‑proofing our
business. It enables us to inform policy developments, accelerate
decarbonisation efforts, mitigate our exposure to climate‑related risks and
capture business opportunities as they arise.
Our strong
approach to partnership also facilitates collaboration across our industry for
a more systemic and effective approach to climate change mitigation and
adaptation. We work with national, devolved, and local governments, industry
bodies, supply chain partners and other key stakeholders to enable the right
conditions to drive the net‑zero transition.
We actively
engage with DfT on its Transport Decarbonisation Plan, advocating for more
measures to facilitate modal shift to public transport, while highlighting any
financial and policy constraints to a rapid decarbonisation of our fleets and
infrastructure. We are members of the rail industry Climate Change Adaptation
Working Group, seeking to work with industry partners to make the rail network
more resilient to climate change.
Governance
Climate
considerations are integrated into a multidisciplinary, company-wide management
processes throughout the group. We see management as active participants in the
mitigation and management of climate-related risks and opportunities:
The Chief
Executive Officer takes
ultimate executive responsibility for all ESG issues including climate-related
risks and opportunities.
The
Executive Committee
provides leadership and direction for the Group on sustainability matters,
including climate change, with material issues presented by the Group Corporate
Responsibility and Finance teams for discussion and decision‑making as they
arise throughout the year. Executive responsibility for sustainability matters
is held by the CEO. Executive responsibility for climate‑related financial
risks and opportunities is held by the CFO, who represents these matters at
Board level.
The
Responsible Business Committee
coordinate ESG efforts across geographies and businesses from both a strategy
and policy perspective. The Committee specifically monitors the group’s
performance in terms of social, environmental (including climate change and
net-zero transitions) and governance (ESG) indicators. The Committee consists
of directors with experience in sustainability and meet four times a year. At
each meeting, the Committee receives a detailed performance update from Bus and
Rail against specific commitments and targets, and discusses strategic
priorities going forward. Over the last year, the Committee reviewed and guided
for example FirstGroup’s plans for further embedding the TCFD recommendations
across the business and our approach to Scope 3 emissions.
The Audit
Committee supports the
Board in the management of risk, including climate‑related risks, and is
responsible for reviewing the effectiveness of risk management and internal
control processes. The Audit Committee reviews climate‑related risks as
relevant in relation to going concern, viability statement and the assessment
of impairment.
The Group
Director of Corporate Responsibility
is a member of the Responsible Business Committee and collaborates with a range
of senior leaders on ESG issues.
The various
group sustainability teams
report to the Group Director of Corporate Responsibility and are tasked with
supporting the risk teams in identifying environmental and climate-related
risks that may have an impact on the group. They are also responsible for
defining sectoral policies aimed at limiting the ESG risks to which First Group
may be exposed to and for implementing net-zero and other ESG strategies and
projects.
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