Key areas
NIBE’s double materiality assessment has resulted in seven material sustainability topics and 16 associated sub-topics. These topics are categorized according to the topical ESRS and are assessed as material based on impact, risk and/or opportunity.
Financial risks
Gross list of potential risks and opportunities
17 sustainability-related potential risks and three opportunities were identified. The supporting data included previous internal risk assessments, existing business relationships, sector-specific conditions and general trends in the area of sustainability. We took into consideration our material impact and identified dependencies on resources in the form of energy, material and healthy workers throughout the value chain. Every risk and opportunity was described in terms of reason and potential impact. All risks and opportunities were associated with one or more of the sub-sub-topics described in ESRS.
Outcome
The outcome of the risk assessment is integrated into the Group’s overall work with risk management and assessed for priority in the same way as other risks. None of the identified opportunities or risks necessitated a change to our overall management process.
Climate-related risks
Physical risks
The impact of physical risks on our operations was mapped using the Verisk Maplecroft climate risk index. We used this analysis to identify the most material physical climate risks for the four regions where we have operations: Europe, North America, Australia and Southeast Asia
In our mapping we did not identify any extreme risks in the areas where we have operations and the need for reorganization of our operations as a result of the climate scenarios is minor.
Transition risks
For transition risks and opportunities, a literature review was conducted to identify sector-specific actual and potential risks and opportunities. The risks identified related to policy, technology, market and reputation, while opportunities included resource efficiency, energy sources, products, services and markets. The risks and opportunities were then ranked based on their potential to impact the business as a whole using a consequence/impact rating scale.
The potential impacts of the most material transition risks and opportunities are then assessed under two different emissions scenarios, in the short-, medium- and long-term (1–5 years, 5–10 years and 10–30 years). By undertaking this assessment, NIBE can enhance its strategic decision-making and demonstrate to stakeholders how we test the resilience of our business strategy against a range of possible future scenarios.
The following two scenarios are included:
- Net-Zero Pathway, which is based on the International Energy Agency’s (IEA) Net Zero Emissions by 2050 Scenario (NZE). It assumes a rapid implementation of clean energy policies that set the planet on course to meet the objectives of the Paris Climate Agreement and limit warming to 1.5°C
- Stated Policies Scenario (STEPS) is a more conservative view of the future, in which only current and planned policies are enacted, and fossil fuels play a greater role in the energy system, and society more widely, for a longer period.
Selection of climate scenarios
We have used various simulations of future scenarios based on changes in GHG emissions. Maplecraft Verisk, which we partnered with, updates the scenarios according to the latest published standards, and NIBE also ensures this. The current risks were updated in 2021, and new update is planned in 2025. The use of scenario analysis within the TCFD framework allows an organization to show the resilience of its business strategies to a number of transition and physical risks that may manifest in various emission scenarios.
Climate scenario 2 (RCP 2.6) – We achieve the goals of the Paris Agreement
RCP 2.6 is a scenario in which we achieve the goals of the Paris Agreement. The world has succeeded in limiting temperature rise and greenhouse gases have stabilized at the current level. We achieve a global temperature increase of +1.5–3°C. New, renewable energy technology is introduced on a large scale, we have low energy intensity and the world population is stabilized at around 9 billion. Significant changes have been implemented in society, infrastructure and buildings.
Climate scenario 3 (RCP 4.5)
RCP 4.5 is a climate scenario in which GHG emissions have fallen due to current and planned actions, resulting in global warming stabilizing at around 2.5–3°C by the end of the century. Society is impacted by an increase in extreme weather events, rising sea levels and ecosystem change, leading to infrastructure, food supply and public health challenges.
Climate scenario 1 (RCP 8.5) – Business-as-usual
RCP 8.5 is a scenario in which GHG emissions continue to rise sharply, causing global temperature to rise by 2 to 4°C. This results in rising sea levels, more extreme weather events, floods and wildfires. The scenario is characterized by continued dependence on fossil fuels, failed climate initiatives and a growing population.
We assess RCP 4.5 as the most likely scenario based on the investments and actions that are currently being implemented. We have selected these scenarios because they are the most well-established and are based on scientific assumptions. Our selection is compatible with the assumptions made in the risk assessment in the financial statements.
Results of resilience analysis
Having identified the risks, we involved our subsidiaries, which assessed the need to take action. Each subsidiary is responsible for implementing the actions, following which a Group-wide assessment is carried out to see if additional action is required to increase our resilience and address our identified risks. Before decisions on investments in new production, additional supporting evidence in the form of evaluations of climate risks, focusing on precipitation, extreme weather events and flood risk, is prepared. Environmental certification and environmental inventories of buildings will be implemented prior to refurbishment and new construction. Energy audits are also conducted to identify energy efficiency opportunities, thus reducing our demand for energy. We are continuing our work relating to climate control in our operations, which will enable us to reduce the impact of heat stress on our employees and to efficiently manage days with temperature variations in respect of heating and cooling
Transition risk
Type of risk | Climate-related risk | Level of | Aver-age | Potential financial effect |
Physical ACUTE
| Flood risk in coastal areas | 9.62 | 8.3 | |
Risk of drought | 6.47 | |||
Risk of extreme tropical cyclones | 8.01 | |||
Flood risk | 9.43 | |||
Risk of landslides | 8.95 | |||
Risk of severe storms | 6.9 | |||
Risk of tropical storms and cyclones | 9.8 | |||
Risk of forest fires | 8.05 | |||
Physical CHRONIC
| Exposure to climate change | 6.97 | 6.58 | |
Cooling degree days (future climate) | 8.84 | |||
Cooling degree days (current climate) | 9.26 | |||
Heating degree days (future climate) | 3.91 | An increase in costs and possible investment may be incurred at external temperatures below 18.3°C because of increased demand for energy. | ||
Heating degree days (current climate) | 3.43 | An increase in costs and possible investment may be incurred at external temperatures below 18.3°C because of increased demand for energy. | ||
Heat stress (future climate) | 5.14 | Increase in costs due to increased demand for energy and | ||
Heat stress (current climate) | 5.63 | Increase in costs due to increased demand for energy and | ||
Rise in sea level | 9.65 | |||
Water stress | 6.6 |
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RISK AREA | RISK | DESCRIPTION | POTENTIAL FINANCIAL EFFECT | MANAGEMENT |
Financial | Low ESG score. | Screening of companies by sustainability performance for financing. May also lead to reputational risk if the company does not meet stakeholder expectations. | Loss of investors, negative impact on share price, reduced access to capital, business losses, undervaluation, difficulties attracting long-term investors. | Set carbon dioxide and climate neutrality goals. TCFD disclosures. Including ESG assessment in all acquisitions. |
Increasing focus on climate change by investors. | Increasing pressure by investment community to provide sustainability disclosures. | Loss of investors. | Set carbon dioxide and climate neutrality goals. Disclose to TCFD. | |
Rising cost of insurance from increasing physical risks to facilities. | Rising costs, asset writedowns. | Conduct scenario analysis and take appropriate actions. | Genomfört scenarioanalys och vidtagit lämpliga åtgärder. | |
Legal | Non-compliance with standards or targets. | Not able to comply with TCFD recommendations or e.g. SASB Sustainable Accounting Standard Board. | Non-compliance with climate change policies could result in lower level of investor trust. This could also result in fines or additional taxes. | Transparent disclosure of climate risks and carbon reporting. |
Acts or omissions that result in litigation. | Liability exposure could result in high legal fees and lead to a risk of access to capital finance. | Transparent disclosure of climate risks and carbon reporting. | Transparent redovisning av klimatrisker och koldioxidredovisning. |
RISK AREA | RISK | DESCRIPTION | POTENTIAL FINANCIAL EFFECT | MANAGEMENT |
Market | Increase in energy prices. | Oil and gas and renewable energy price volatility impacts energy prices. | Higher operating expenses, reduced demand due to rising product prices. | Diversification of sources of energy supply, negotiated long-term contracts, productivity improvements, cost reduction. |
| Increase in the price of raw materials. | Increase in prices for raw materials due to supply and demand and wider commodity price volatility. | Higher operating expenses, reduced demand due to rising product prices. | Diversification of sources of supply for key raw materials, negotiated long term contracts with minimum purchase obligations, productivity improvements, cost reduction, diversification of energy sources. |
| Customers' GHG emissions Scope 3 targets. | Growing pressure from customers for NIBE to reduce its GHG emissions to enable them to meet SBT. | Reduced revenue from loss of customers. | Set a carbon dioxide and climate neutrality goal, invest in greener technologies, diversify to greener products, products that will be required for transition. |
Technology | Emerging technologies in low-carbon energy sector. | Failure to keep up with new technologies, such as for energy storage, and integrate them into production processes. | Capital investment needed in technology, increased revenue from higher sales, lower fines/taxes for high GHG emissions. | Evaluate ground-breaking technologies, conduct product life cycle assessments. |
RISK AREA | RISK | DESCRIPTION | POTENTIAL FINANCIAL EFFECT | MANAGEMENT |
Reputation | Investor sentiment.
| Unable to meet sustainability standards set by investors. | Negative impact on share price, loss of ability to attract investment. | Set a carbon dioxide and climate neutrality goal and invest in low carbon technologies, transparent carbon emissions reporting, offsetting residual emissions. |
Severe reaction from | Media headlines or social media activity reflecting strong reaction from stakeholders as a result of negative impact from company regarding GHG emissions. | Reduced access to capital as a result of reputational damage. | Set a carbon dioxide and climate neutrality goal, invest in low carbon technologies, in long term offsetting residual emissions. | |
Internal frustration | Frustration may arise from a lack of action on climate change. | Impact ability to attract and retain talent. | Set a carbon dioxide and climate neutrality goal, invest in low carbon technologies, in long term offsetting residual emissions. | |
Regulatory
| Carbon tax rise. | Increased price of carbon through national and international schemes. | Higher operating expenses, reduced demand due to rising product prices. | Use a shadow carbon tax of USD40/CO2 equivalent emissions as a basis for potential investments. |
Rise of emissions | Increasing carbon price or higher taxes if cap is exceeded. | Higher operating expenses, higher capital investment, reduced demand due to rising product prices. | Invest in greener technologies to reduce emissions ahead of rising carbon prices, align GHG with Paris agreement. | |
International and national measures to reduce GHG emissions. | Regulation that requires significant equipment modifications, operational changes or purchase of emissions credits to reduce GHG emissions from operations. | Increased capital costs, increased compliance, operating and remediation costs. | Invest in greener technologies, change to lower GWP refrigerants, reduce fossil fuels in production process, efficiency improvements. | |
Regulatory changes. | Emerging disclosure requirements. | Emerging regulations and disclosure requirements may result in increased baseline costs. | Engage with trade associations and monitor strategy development. |
Opportunities
RISK AREA | OPPORTUNITIES | DESCRIPTION | POSSIBLE ENVIRONMENTAL IMPACT | MANAGEMENT |
Market | Increasing demand for products required for climate adaptation and resilience. | Increasing demand for heat pumps and other low carbon technologies. | Increased revenue from higher sales of new products. | Invest in product and production development and plan for market growth. |
| Increasing oil and gas prices. | A rise in oil and gas prices presents an opportunity for heat pump technology to step in as the low cost option (heat pumps still linked to fluctuating electricity prices). | Increased revenue from higher sales of existing products. | Invest in product and production development to plan for increased demand. |
Regulatory | Regulation and policy requiring low carbon transition. | Increased demand for low carbon technology to meet regulation. | Increased revenue from higher sales of new products. | Invest in product and production development to plan for increased demand. |
| Engage in development of public policies to reduce GHG emissions and the low carbon energy transition. | Improve regulatory certainty, help guide investment decisions, drive growth in demand for energy efficient products. | Emerging regulations may increase demand for heat pump technology. | Invest in product and production development to plan for increased demand. |
Technology | Reduce GHG emissions through product enhancements | Reduction of company and downstream GHG emissions through product enhancements using breakthrough technologies. | Capital investment needed in technology, increased revenue from higher sales, lower fines/taxes for high GHG emissions. | Evaluate ground-breaking technologies, conduct product life cycle assessments. |
