Governments, financial institutions, investors, our customers and other important stakeholders are setting higher demands and requirements related to climate change awareness. This has created a call for companies to disclose how climate change is affecting their financial performance and strategy.
Seafood has a smaller carbon footprint than other animal productions systems. With a growing population the world needs food, and ocean-based diets have been pointed out an important contributor to increasing the world’s food production. However, although seafood is considered as a healthy and sustainable source of protein, existing operations and exploiting new opportunities need to be done in a responsible and sustainable manner.
The Group believes that the increased focus on climate and environmental sustainability represents a significant opportunity for the Group, the seafood industry and for Norway. In this context, it is the responsibility of both the industry and political authorities to exploit these opportunities. It requires reason and knowledge to prevail in the years to come.
The Group's operations are closely linked to the natural conditions in Norwegian and international freshwater sources and marine areas. Access to clean water and clean seas is a prerequisite for the Group's operations.
LSG has set ambitious science-based targets to actively to reduce our overall carbon footprint and also focusing on reducing the environmental impact of the Group's activities.
The Task Force on Climate-related Financial Disclosure (TCFD) framework is designed to improve the clarity, consistency and reliability on climate-related disclosures for a better understanding of climate-related risks and opportunities and how to implement measures to mitigate such risks.
In 2020 the Group conducted an in depth interview analysis with 20 key internal and external stakeholders to identify what is considered to be the Group’s main risks and opportunities related to climate change.
The qualitative scenario analysis summarized below is aligned with the TCFD recommendations. The Group’s main vision is to be the most profitable global supplier of sustainable high-quality seafood and sustainability is at the core of every important strategy decision we make. The Group acknowledges the importance of better disclosures and aims to integrate the complete TCFD recommendations with quantifications of potential financial impact in due course.
Climate related risks & opportunities
The transition to a low-carbon society will potentially reduce physical risks from climate change, but it will also lead to transition risks, which need to be identified, assessed and managed.
Below we highlight the key transition and physical risks and opportunities that were identified in the interview analysis.
Transition risks are risks associated in the transition to a low-carbon society. It involves risks related to regulatory changes, legal and financial responsibility for damage caused by climate change, new technology, changes in the market and consumer behaviour as well as reputational risk.
POLICY AND LEGAL
Climate policies aim to mitigate the negative effects of climate change. Policy changes and new regulations can pose a negative risk for companies through failure of compliance, or through increased costs such as carbon pricing and increased prices of feed ingredients.
For Lerøy (“LSG”), the introduction of new and more stringent climate-related regulations were identified as a risk mainly in two areas: potential new regulations that could have a significant financial impact on operations, and potential new regulations relating to the purchase of raw materials.
An increase in regional, national, international and industry specific regulations is likely to impact LSG financially through increased operating costs and decreased revenue.
Potential new climate-related regulations impacting operations and purchase of raw materials:
Development of new technological solutions will function as an effort to reduce carbon emissions and can represent both opportunities and risk. Unsuccessful investments in new technologies, or the cost of transitioning to lower emission technologies may pose a significant financial risk to LSG:
Climate change awareness has created a shift in demand for lower emission foods. Failure to comply to stakeholder environmental demands may lead to a reduced demand for our products, impacting our revenue.
Climate change has been identified as a potential source of reputational risk tied to changing customer or community perception of a company’s contribution to or detraction from the transition to a lower-carbon economy. By not meeting the expectations from stakeholders, the reputation of LSG may be damaged and directly impact consumer behaviour.
Physical climate-related risks
Physical impacts are risks associated with direct implications of climate change, and can be event driven such more extreme weather (acute) or longer-term shifts in climate patterns such as higher temperatures (chronic)
Financial implications vary from costs associated with damage of sites and vessels to the larger impacts associated with loss of fish and less stable access to raw materials as well indirect impacts from supply chain disruption,, Physical risks could have a direct impact on LSG’s production capacity and revenue growth.
Acute physical risks are risks associated with more frequent extreme weather such as storms, hurricanes, floods and heavy precipitation of rain and snow. Such events may impact LSG’s direct operations, or cause disruptions in the supply chain.
For LSG, any events delaying production has a financial implication. It is therefore crucial for LSG to be prepared for such scenarios. Acute physical risks can also impact the supply of raw materials used in fish feed, which is a extremely important for LSG.
Chronic climate risks are risks derived from longer-term shifts in climate patterns, such as higher temperatures in air and sea, and change in sea levels. The sea is LSG’s biggest asset, and any changes in sea levels or temperature that directly impacts the marine ecosystem can potentially impact the company’s livelihood in the long run.
Rising sea temperatures:
Rising air temperatures
As markets and consumer behaviour shift in response to climate change, the seafood industry have a substantial opportunity to harness solutions addressing climate change. Companies prepared to manage and mitigate climate-related risks, will obtain a competitive advantage. Technological improvements may lead to resource efficiency. Additionally, an increasing supply of low-/zero-emission energy sources, combined with potential carbon pricing, may create a shift in demand for these services.
Exploit market shifts towards climate friendly products and services:
Exploit opportunities that follow a new positioning in a low carbon market:
Exploit collaborative efforts:
Resource efficiency as equivalent to cost efficiency and can be obtained through:
TOP 3 CLIMATE RELATED RISKS & OPPORTUNITIES
Below we highlight the top three climate-related risks and opportunities that were identified as the most strategically and financially important for LSG based on the results from the survey:
TOP 3 RISKS:
TOP 3 OPPORTUNITIES:
The below document with tables summarize the findings from the interviews.
Note that the risk and opportunity assessments are provisional and will be further developed. The heatmapping is result of a preliminary assessment of risk level based on interview input. We intent to stress-test this resilience in the future by using scenarios and quantitative analysis.
Potential financial impact is categorized with the following colours in the summary table.