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.
CSCI’s Practice
In terms of climate risks, the Taskforce on Climate-related Financial Disclosures (TCFD) has recommended that the Group implement the recommendations, identify physical and transitional risks, and develop clear strategies for mitigation and response to climate change to enhance climate resilience. The climate scenario analysis for the Hong Kong region has been completed. This following table summarises the Group’s work on the four core elements of TCFD, namely governance, strategy, risk management, and indicators and goals.
Governance
Board of Directors
To ensure the Group’s ESG performance always meets its goals and commitments, the Board of Directors oversees the Group’s ESG matters, including monitoring strategies and initiatives related to climate risks and opportunities. The Sustainability Committee, composed of Board members and reporting to the Board, is responsible for managing the Group’s sustainability agenda, strategies, policies, and performance.
Management
Based on the opinions of the Sustainability Affairs Working Group, the Compliance and Risk Committee and Operations Management Committee are responsible for planning and implementing climate-related initiatives, tracking the Group’s progress in carbon neutrality, low carbon construction, circular economy, and other related matters, and reporting to the Sustainability Committee on these matters.
The Sustainability Affairs Working Group is composed of representatives from various functional departments, including financial services, investor relations, risk management, and other related functions. The working group is responsible for tracking emerging ESG trends and issues to assist committees and subcommittees in developing policies and implementing measures. Concerning climate risks, the working group continues to monitor new risks and opportunities related to extreme weather events, climate regulatory actions, carbon taxes, renewable energy, net-zero building design, and supply chain flexibility.
Strategy
TCFD emphasises two main types of climate risks: physical risks and transition risks. Physical risks may include extreme weather events such as droughts or floods, as well as the long-term impacts of rising global average temperatures. Transition risks may include the transition towards a lowcarbon economy, new regulations, and innovations in energy efficiency.
In the climate scenario analysis for the Hong Kong region, the Group has identified several climate-related risks and opportunities that may have potential impacts on the business.
| Physical risks | Description | |||||||||
| Business continuity Risk types: acute and chronic risks Time horizon: short to long term Probability: Likely Impact level: Low |
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The risk levels of the Group are generally consistent in two scenarios. The Group’s assets and operations in Hong Kong face low risks, with the biggest risk factor being coastal flooding that may be caused by extreme precipitation, storms, and increased average precipitation. Other risks, such as wildfires and water pressure, have an extremely low risk in the region.
| Transitional Risk | Description |
| Regulatory Compliance and External Commitments Risk Type: Policy and Regulation Timeframe: Medium to Long-term Likelihood: Possible Impact level: Medium to High |
The Group may need to alter our processes, products, and services in order to comply with local, national, or international climate change regulations. The Group has already established targets for reducing greenhouse gas emissions and achieving other sustainability goals. The failure to meet relevant targets or to reduce business impacts on the environment, or the perception of a failure to take responsible action on climate change, may result in negative publicity and adversely affect the Group’s business and reputation. In addition, the Group may be subject to liability, fines, or business suspension in the future for failing to comply with or being accused of failing to comply with various laws and regulations, including environmental regulations. The Group will further assess the 2060 carbon neutrality target’s contribution to maintaining global warming below the 2°C commitment in the Paris Agreement and its ability to mitigate future carbon pricing and regulatory impacts on its business, so targets and action plans will be adjusted appropriately in a timely manner as needed. |
| Carbon Pricing Risk Type: Market Timeframe: Medium to Long-term Likelihood: Possible Degree of Impact: Medium to High |
Under the Paris Agreement, governments around the world will take measures to reduce greenhouse gas emissions, which is expected to result in an increase in carbon prices related to emissions trading systems, carbon taxes, fuel taxes, and other policies. The Group uses enterprise carbon pricing tools of professional institutions to quantify risks and understand the potential future financial impact under high, medium, and low carbon price scenarios from now to 2050. According to the analysis, the carbon pricing risks related to upstream emissions in Scope 3 are the largest contributors to the Group’s overall carbon pricing risks in both the 4°C and 2°C scenarios, which may result in a significant increase in procurement costs. Under high carbon price scenarios, unmitigated risks may increase operating expenses and reduce the Group’s operating profit margin. Among other methods, the Group will minimise these impacts by promoting low-carbon behaviors, developing low-carbon technologies, and procuring green materials. |
We will enhance our internal procedures and improve our response capabilities, and we will regularly assess the impact of climate risks to ensure they are under control. For details on future measures targeting specific impacts, please find below:
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 |
|
| 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 |
|
| 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 |
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 |
Risk management
The Group’s overall risk management strategy is disclosed in the “Corporate Governance Report”. Following TCFD’s recommendations, the Group engaged an international consultant team to conduct a climate risk assessment in order to identify and evaluate transitional and physical risks in light of climate scenarios of 2°C and 4°C as well as related short, medium, and long-term timeframes. We summarised the results of these analyses in terms of time span, magnitude, and likelihood in order to assist in the risk management process.
The Group also uses World Resources Insititute (“WRI”) Aqueduct Water Risk Atlas to assess current water risks at each operating location on an annual basis. Climate impacts and future scenarios are taken into account when assessing these water risks.
Metrics and targets
The Group has established a long-term goal of achieving carbon neutrality by 2060, as well as a short-term goal of reducing carbon intensity by 25% by 2025 as compared with 2018. To manage costs and environmental impacts, the Group is also analyzing energy, water, and waste data and measures for the purpose of developing quantifiable reduction targets by 2025.
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.