Climate-Related Disclosure

The Group understands that climate change presents a range of challenges and opportunities that have far-reaching implications for the Group’s future business strategy and sustainable development. In December 2021, the Group became a supporter for the Task Force on the Climate-Related Financial Disclosures (“TCFD”), the first organization in the construction industry in China. Aligning with advanced international standards and practices, the Group is exploring climate change risk factors in accordance with the recommended framework by the TCFD, focusing on four areas of management, strategy, risk management, indicators and targets, which are organically integrated with the Group’s investment decision-making and risk management system to enhance climate risk management capability and information disclosure level.

What is TCFD?

At the end of 2015, the Financial stability Council established an industry-led TCFD in response to the Paris climate agreement. With the objective of developing a consistent climate-related financial disclosure framework, the Taskforce has promoted greater transparency in information to enable enterprises to provide information to lenders, insurance companies, investors and other stakeholders, and to help the markets understand the risk exposure of financial systems to climate change. The TCFD was widely supported and adopted by international governments and regulatory agencies and subsequently issued more guidelines since the publication of its recommendations in 2017.

The Group has commissioned a team of international professional consultants to assist it in conducting climate scenario analysis, identifying the physical and transition risks that the Group will face in 2030 and 2050, and assessing the financial impact of these risks, in accordance with regulatory requirements and recommendations of the TCFD. Scenario analysis is a systematic and scientific management tool used to identify problems or opportunities a company may face over a period of time. For the first time, the Group focused on its Hong Kong operations, which are representative of its headquarters and project types, and explored the impact of changes in physical, economic and regulatory external conditions on its business in the region to inform strategic planning and adjustments.

The Scenario Analysis is divided into two phases. The first phase is based on the representative concentration paths (RCPs) of the Intergovernmental Panel on Climate Change (IPCC) and the research and development model for climate scenarios published by the Organization for Economic Cooperation and Development (OECD) and the International Energy Agency (IEA) in 2017. It focuses on assessing the impact of climate-related physical risks on projects under construction and property holdings under 2°C and 4°C scenarios, as well as policy and the impact of transition risks such as policies and markets on overall revenues. The second phase will further analyze the financial data responses of the identified impacts to assist the Group in adjusting its climate strategy. A summary of the Phase 1 analysis is set out in the following table:

2℃ Scenario

Scenario Description

As climate change related laws and regulations have increased and more carbon pricing instruments and markets have been introduced, greenhouse gas emissions have been effectively controlled and are expected to decline after 2040. The frequency of extreme weather events will still increase compared to the current situation.

Business Impact

  • An increased likelihood of heavy rainfall and heavy winds conditions after 2030 may disrupt construction and operations, causing delays in construction.
  • Continuous and extensive precipitation may cause potential damage to equipment and materials, as well as increase health and safety hazards such as workers slipping.
  • Drought and high temperature conditions are unlikely to occur and have limited impact.
  • Laws and policies continue to increase the cost of compliance associated with carbon emissions and may even result in operating losses of the enterprise.
  • High-emission suppliers, such as construction material suppliers increase costs due to carbon pricing and will most likely to pass it on to the material pricing.

Key Risks Type of Risk 1 Time Interval2 Recommended Measures
Extreme precipitation leads to business interruption and loss of assets Physical Risk
(Acute)
Short to Long Term
  • To enhance the design and management of buildings in this area, taking into account the increased likelihood of the potential heavy precipitation events;
  • To consider strengthening the long-term waterproofing and flood resistance finishes and materials at lower floors;
  • Conduct specific construction site flood risk assessment;
  • Improve emergency management and emergency evacuation plans in the flood
The increase in average precipitation affects the business Physical Risk
(Chronic)
Medium to Long Term
Business interruption and loss of assets due to the storm Physical Risk
(Acute)
Short to Long Term
  • Perfect emergency management and emergency evacuation plans in high wind conditions
  • Install appropriate storage facilities to ensure the safety of materials and equipment
Business interruption due to other climatic factors such as drought and high temperature Physical Risk
(Acute and Chronic)
Long Term
  • Regularly assess the risk impacts to ensure that it is under control
Carbon pricing leads to increased compliance costs Transition Risk (Policy and Legal) Medium to Long Term
  • Set targets and specific action plans to reduce greenhouse gas emissions
  • Perfect the Scope 3 emission data
Carbon pricing leads to increased acquisition costs for construction materials Transition Risk (Market) Medium to Long Term
  • Increase the use of low carbon materials
  • Support suppliers in developing green processes and technologies
Carbon pricing leads to increased costs for other materials purchases Transition Risk (Market) Long Term

1 Refer to the TCFD Risk Classification.
2 Short term: 2021 to 2025; Mid term: 2026 to 2030; Long term: 2031 to 2050 (i.e. Hong Kong Carbon Neutral and Target Year).


4℃ Scenario

Scenario Description

Limited implementation of relevant climate change rules and regulations is not sufficient to reduce greenhouse gas emissions. As a result, global temperatures continue to rise and extreme weather conditions become more frequent, posing a threat to assets and people’s health.

Business Impact

  • Heavy rain and windy weather are highly likely to disrupt construction and operation, causing delays in the works.
  • Continuous and extensive precipitation may cause potential damage to equipment and materials, and may also increase health and safety hazards such as workers slipping.
  • Drought and high temperatures are unlikely to occur, but business activities will be disrupted if they occur.
  • Some laws and policies may increase the cost of compliance and procurement related to carbon emissions, but have limited impact.

Key Risks Type of Risk Time Interval Recommended Measures
Extreme precipitation leads to business interruption and loss of assets Physical Risk
(Acute)
Short to Long Term The response method is broadly the same as that of 2℃ scenario, but the specific scope and intensity of actions will be adjusted according to the actual financial impact.
The increase in average precipitation affects the business Physical Risk
(Chronic)
Medium to Long Term
The storm caused business disruption and loss of assets Physical Risk
(Acute)
Short to Long Term
Business interruption due to other climatic factors such as drought and high temperature Physical Risk
(Acute and Chronic)
Long Term
Carbon pricing leads to increased compliance costs Transition Risk
(Policy and Legal)
Medium to Long Term
Carbon pricing leads to increased acquisition costs for construction materials Transition Risk
(Market)
Medium to Long Term
Carbon pricing leads to increased costs for other materials purchases Transition Risk
(Market)
Long Term

The Group believes actively adopting the TCFD framework to identify risks and disclose data can improve the Group’s overall risk management capability and disclosure level, better stakeholders’ understanding of the risks involved and improve transparency of investment information. These assessments and analyzes reveal the impact of climate change on the Group’s operations and financial performance, help formulate the forward-looking deployments, improve the Group’s climate adaptability in the long run and move toward the Group’s goals in its sustainable development roadmap.