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In 2015, the Financial Stability Board (“FSB”)29 established the Task Force on Climate-related Financial Disclosures (“TCFD”) to develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. In 2017, the TCFD published a set of recommendations for voluntary climate-related financial disclosures that are consistent, comparable, reliable, clear, and efficient, and which aim to provide decision-useful information to lenders, insurers, and investors.
We recognise the risks and opportunities presented by climate change to our business. In accordance with our Climate Change Policy, we are committed to communicating our management approaches and strategies for climate mitigation, adaptation and resilience to our stakeholders. Since 2018, we started to publish climate-related financial disclosures with reference to the recommendations of the TCFD under the four core categories of governance, strategy, risk management and metrics and targets. Our disclosures are set forth in the following pages.
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Governance
SPL’s governance around climate-related risks and opportunities
Our SD Steering Committee is chaired by our Chief Executive. Other members are the Finance Director and five members of our senior management from the development and valuations, human resources and administration, portfolio management and technical services and sustainable development departments. The Chairman of the SD Steering Committee reports relevant SD matters, including climate-related issues, to the Board as appropriate.
The SD Steering Committee meets quarterly and, in accordance with its terms of reference, has the following responsibilities related to climate change:
- Review the Company’s SD 2030 Strategy, including approving targets or key initiatives related to climate change mitigation, adaptation and building climate resilience.
- Review any significant risks, opportunities, or investments regarding climate change or energy/carbon management.
- Review on an annual basis the performance of the Company in achieving the energy/carbon intensity reduction targets and other KPIs under climate change and energy.
The Board provides oversight of our risk management framework and our SD risks, including climate-related risks. Material SD issues are reported and discussed at quarterly board meetings. We also conduct regular risk identification, analysis and review management processes throughout the year through the Audit Committee and our ERM System, including our Corporate Risk Register in which climate change has been identified as an emerging risk.
We have adopted a Climate Change Policy to guide our management approach and strategy on climate change mitigation, adaptation and resilience.
In 2017/18, we conducted a materiality review to gather feedback from over 300 internal and external stakeholders. The topics of green buildings, climate change and energy efficiency were identified as the three most material issues to our business continuity and development. These issues align with the focus areas in the Performance (Environment) Pillar.
We also support the Business Environment Council’s efforts to develop and promote the Low Carbon Charter for the property and construction sector in Hong Kong.
Strategy
The actual and potential Impacts of climate-related risks and opportunities on SPL’s businesses, strategy, and financial planning
We recognise that climate change poses different types of risks to our business. Apart from physical risks, such as flooding, extreme weather events and increasing temperatures, which can disrupt or negatively impact our employees, assets and supply chain, we also acknowledge the potential financial impacts that can result from transition risks such as regulatory, market and reputational risks.
Climate change also presents us with opportunities to develop low carbon and climate resilient assets to meet the increasing market demand for climate-proof buildings and to mitigate the potential operational costs attributed to extreme weather conditions, such as maintenance and insurance premiums. Also, climate change helps stimulate business innovation and experimentation, which may aid the transition to a lower-carbon economy.
We are committed to creating climate resilient places and communities that are better able to cope with the physical impacts from climate change. We are also committed to developing certified green buildings that are energy efficient and low carbon by design and in operation. In 2019, 97% of all existing buildings were certified green buildings, and over 95% of our 2019 gross rental income was from certified green buildings.
Under our SD 2030 Strategy, one of our 2020 KPIs is to generate 2 to 4% of landlord’s energy from renewable energy sources in selected new office developments. We are also exploring different procurement options for off-site renewable energy for our portfolio, where feasible.
To help us develop long-term strategies to protect our business from climate-related risks, in 2019 we launched a study to help us identify the key risks and opportunities posed by climate change to our assets and business operations in Hong Kong, Mainland China, and Miami, U.S.A.
To prepare for the low carbon transition, we have established carbon reduction targets and initiatives under our SD 2030 Strategy for our Hong Kong and Mainland China portfolios. In 2019, our SBTs were officially approved, making us the first real estate developer from Hong Kong and Mainland China to establish long-term decarbonisation goals in line with the Paris Agreement for our global portfolio. These approved SBTs are:
- Reduce Scope 1 and 2 greenhouse gas (“GHG”) emissions by 35% per sqm by 2025 and by 52% per sqm by 2030 (compared to the baseline year of 2018).
- Reduce Scope 3 GHG emissions from downstream leased assets by 28% per sqm by 2030 (compared to the baseline year of 2018).
- Reduce Scope 3 GHG emissions from capital goods by 25% per sqm by 2030 (compared to the baseline years of 2016-2018).
In January 2018, we issued our first 10-year green bond, which raised US$500 million to fund green projects related to renewable energy, energy efficiency, and climate change adaptation. In July 2019, we secured our first sustainability-linked loan, with the interest rate being indexed against our year-on-year SD performance improvement. In 2019, we issued our second Green Bond Report, which provides information on green projects funded by the green bond and their estimated quantitative environmental impacts, including energy and water savings, renewable energy generation and wastewater management impacts.
Since 2011, we have worked with Tsinghua University through the Joint Research Centre for Building Energy Efficiency and Sustainability to develop and test new methods to increase energy efficiency and improve environmental performance in our projects. This collaboration continues to generate substantial energy savings and allows us to communicate and share new ideas and practices with our employees, business partners, industry peers and other researchers. In May 2019, we extended our partnership for another three years.
Our new ventures department works with investors, accelerators, and experts from around the world to source new technologies that add strategic value to our operations, including low carbon technologies. In 2019, we also launched UrbanLab, the first PropTech corporate accelerator programme in Mainland China that focuses on property technology, to foster application of innovative technology solutions relevant to the real estate sector.
Risk Management
How SPL identifies, assesses, and manages climate-related risks
In accordance with the TCFD’s recommendations, we are conducting asset-level modelling of acute and chronic physical risks associated with the four Representative Concentration Pathways (RCP 2.6, 4.5, 6 & 8.5) used by the Intergovernmental Panel on Climate Change. As part of our ongoing climate risk assessment, we are collating historical data and projecting climate variables, such as temperature, precipitation, sea level rise and wind speed from suitable global climate models, and using such climate data to predict local climate scenarios to help us accurately evaluate the exposure of specific assets and operations in selected timeframes, from the immediate term to the distant future, namely, 2025, 2030, 2050, and 2100.
As part of our ongoing climate risk assessment, we are also undertaking detailed risk and resilience assessments at the asset level to evaluate the degree of vulnerability and criticality of various business and operational areas under the potential effects of the identified climate risks. We have considered individual building features such as system robustness, redundancy and susceptibility to climate hazards, including flooding, heat stress, water stress, and extreme wind effects.
In terms of transition risks, we are reviewing global and local government policies, and regulatory, technological and market trends based on different climate scenarios such as the International Energy Agency 2oC Scenario (IEA 2DS), in the global transition to a low carbon economy. Through the review of these mega-trends, we are working to identify the potential risks and opportunities that may have a financial impact on our business.
The findings of the assessment will be used to develop a targeted action plan to mitigate risks and building resilience across our portfolios and will be incorporated into our ERM System for continuous management of material climate risks.
Regarding investment assessment, as part of our due diligence process for new acquisitions, we have integrated SD criteria, including climate adaptation and resilience, energy efficiency and carbon emissions of the acquired assets into the risk assessment process.
We have had a Business Recovery Plan in place since 1997 to help ensure that we maintain critical crisis planning and execution capabilities in the event of major incidents, including extreme weather events. We have also put in place local crisis response plans for all portfolios.
Through the ISO 14001 Environmental Management System and ISO 50001 Energy Management System, we manage our daily operational risks related to climate change, carbon and energy management.
Metrics and Targets
The metrics and targets used to assess and manage relevant climate-related risks and opportunities material to SPL
The below table provides key metrics related to the implications of GHG emissions, energy, and green building development on the financial aspects related to revenue, expenditures, assets and financing costs.
29The FSB is an international body that monitors and makes recommendations about the global financial system.