CLIMATE CHANGE RISK ANALYSIS IN LINE WITH THE TCFD
It is now clear how climate change represents a complex, urgent challenge that will have a major impact on the future of the planet and society. Rising temperatures are at the base of extreme natural events such as floods, tornadoes, forest fires, rising sea levels, droughts, decreased productivity and altered agricultural ecosystems, etc. These events are resulting in significant changes as well as in economic, environmen- tal and social costs. This can have substantial impacts and repercussions on various industries and companies.
Since 2021 Moncler has been voluntarily reporting on business risks linked to climate change, assessed according to the recommendations of the Financial Stability Board's Task Force on Climate-related Financial Disclosures (TCFD): Governance, Strategy, Risk Management, Metrics and Targets.
In particular, during 2021, the Head of Internal Audit responsible for risk manage- ment and for the Enterprise Risk Management (ERM) process, in collaboration with the Sustainability Unit, carried out a scenario analysis aimed at assessing the main cli- mate change risks associated with the main operating sites in Italy and Romania and specific geographical areas of the Moncler and Stone Island supply chain.
In addition to physical risks, i.e. those related to the physical impact of climate events, transition risks, namely the ones related to the process of adjustment to a low-carbon emissions economy, linked to changes in public policies, regulations, technology and client choices, were also taken in consideration.
Regarding physical risks, an assessment was performed on the basis of the cli- mate scenarios identified by the Intergovernmental Panel on Climate Change (IPCC) (RCP 4.5 and RCP 8.5)5. In particular, the two scenarios present, respectively, an intermediate emissions scenario, aligned with the Paris Agreement, and a business-as-usual scenario with increasing greenhouse gas emissions and limited climate policies. The analysis was performed over two different time horizons: medium term (2030) and long term (2050), to assess how climate events can evolve and affect the business.
Also with respect to transition risks, an analysis was carried out on the basis of the two scenarios identified by the International Energy Agency (IEA), which identifies two main paths of the energy system evolution. The first is a scenario that reflects ex- isting and planned government policies, without achieving the objective of con- taining the temperature increase within 2°C. The second is a decarbonised scenario (Sustainable Development Scenario - SDS), which pursues the main energy objec- tives of sustainable development, including full access to energy and the containment of the temperature increase well below 2°C and which calls for developed econo- mies to achieve net-zero emissions by 2050. So, in line with what has been done for physical risks, the analysis of transition risks was also performed over two dif- ferent time horizons: medium term (2030) and long term (2050), in order to assess how climate events can evolve and affect the business.
Scenario analysis and assessments led to the identification of potential impacts and their time horizons (short, medium and long); these analyses will be repeated annually and will be the starting point for defining mitigation and adaptation actions to be undertaken for each potential risk identified.
RISK DESCRIPTION MITIGATION ACTION
Intensification of extreme and chronic climatic phenomena
The progressive intensification of extreme and chronic climatic phenomena (heavy rainfall, tornadoes, heat or cold waves, storms, fires, drought phenomena, etc.) with increasing frequency could impact the physical operational sites of the Group and its supply chain, resulting in possible disruption or reduction of produc- tion levels (business continuity).
- The Group has adopted insurance cover aimed at limiting the economic impact of any damage caused by extreme climatic events.
- The Group has defined specific response plans to deal quickly and effectively with any emergency situations relating to its logistics services or its supply chain in or- der to guarantee business continuity.
- The Group has adopted a procurement strategy aimed at diversifying its supply chain as much as possible both in geographical terms and in terms of independence from individual suppliers.
- The Group periodically conducts in-depth analyses to assess in detail the impact of these risks on the most representative geographical areas of its supply chain.
Increase in the cost of raw materials Climate change such as rising temperatures and droughts could impact the production capacity, especially of some natural raw materials. This could affect both availability and purchase price.
- The Group has adopted a strategy to diversify its supply chain so that it can effectively manage any fl uctuations in the price of raw materials in certain geographic areas, while establishing long-term relationships and agree- ments that result in beneficial business relationships for both parties.
- The Group is continually looking for new and innovative solutions in terms of materials.
Introduction of legislation to curb climate change The adoption of energy and climate policies aimed at mitigating climate risk (e.g. carbon pricing) and the contextual development of new technologies and prod- ucts could have an impact on the business.
- In its Sustainability Plan, the Moncler Group has, volun- tarily and in advance, set very challenging objectives for minimising its environmental impacts with science- based criteria that seek maximum energy efficiency in all operations and the use of energy from renewable sources, anticipating the possible introduction of regula- tions aimed at containing climate change.
Legislation on the labelling of textile products Manufacture of products not in line with increasing legis- lation on sustainability labelling aimed at ensuring textile products with low environmental impact could reflect on sales and revenue.
- The Moncler Group has set very detailed internal guide- lines to define and promote the use of sustainable materials. Guidelines have already been adopted for the launch of certain collections such as Moncler Born To Protect which anticipate the introduction of regulations on sustainability labelling.
- The Group is continually looking for new and innovative solutions in terms of materials.
Change in client purchasing habits The growing sensitivity of end and wholesale clients to- wards products and brands with low environmental impacts could directly reflect on purchasing preferences and, in the long term, on increasing costs to transition towards alternative production materials, circular econo- my models, etc.. Extreme temperatures and sudden climatic changes may also lead to a demand for lighter garments in addition to typical winter clothing.
- The Group has already been working for some time to in- tegrate lower-impact materials into its collections; evi- dence of this commitment is the Moncler Born to Protect collection.
- Moncler has established internal guidelines on sustain- able materials to promote their use in new collections, in order to proactively respond to the increasing sensi- tivity of end and wholesale clients towards products and brands with a low environmental impact.
- The Group pays particular attention to create value for its clients and establish a relationship of trust; to this end, a Strategic Sustainability Plan has been defi ned and the achievement of its objectives is periodically and trans- parently reported in the Group s public documentation, which describes the Group s commitment to sustainable development and underlines how environmental and social responsibility are increasingly an integral part of the business model, focusing on fi ve strategic priorities: climate change, circular economy, responsible sourcing, valuing diversity and support for local communities.
- Moncler in recent years has also been offering lighter garments that can be used in different occasions and less extreme weather conditions.
5 Representative Concentration Pathway.
The Group is committed to continue to align with the TCFD recommendations with the aim of identify the metrics and targets used to measure the climate-related financial impact on the basis of the risks and opportunities analysed.
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