This year, our businesses have adopted absolute and intensity emissions targets and we have climate change strategies, governance systems and disclosures which support the global goal of reducing greenhouse gas emissions.
Wesfarmers acknowledges the scientific consensus on climate change and supports the 2015 Intergovernmental Panel on Climate Change (IPCC) Paris Climate Agreement (Paris Agreement). This year, our businesses have adopted absolute and intensity emissions targets and we have climate change strategies, governance systems and disclosures which support the global goal of reducing greenhouse gas emissions.
The transition to a low carbon economy presents both risks and opportunities for our businesses, shareholders, customers, team members and the communities in which we operate. This year, Wesfarmers continued its work embedding our climate change strategy across our portfolio of businesses, in an effort to reduce our environmental footprint while also delivering long-term sustainable growth. Wesfarmers recognises the complex nature of this challenge for our businesses and communities.
Our climate change strategy is reflected in a diverse range of projects across the Group. We look forward to facing the challenges ahead and being part of the solution to achieve a low carbon economy. As part of our strategy, Wesfarmers continues to implement the recommendations of the Financial Standards Board Taskforce on Climate-related Financial Disclosures (TCFD). We recognise the importance of climate-related financial disclosures to enable efficient allocation of capital within markets and to drive the transition to a sustainable global economy for all. This year, we have substantially increased our climate-related disclosures.
The following table illustrates the evolving focus of our climate change strategy and climate-related disclosures.
Wesfarmers treats climate change as a critical governance and strategic issue.
The board of Wesfarmers has the highest level of oversight and responsibility for climate change within Wesfarmers. Climate change risk management is a permanent item on the Wesfarmers Operating Cycle and is discussed by the Board and the Wesfarmers Audit and Risk Committee. The Board approves the Group’s strategy including Climate Change Policy, targets and strategic climate change-related decisions. The Board also receives reporting and oversees climate change risk management. A consolidated group risk report is provided to the Audit and Risk Committee and the Board of Wesfarmers for review and approval. The corporate plan is subject to a similar process and, in future years, will include emissions forecasts.
The Wesfarmers Leadership Team reviews emerging risks and opportunities, leads stakeholder engagement and facilitates sharing of best practice throughout the Group.
Each divisional board or steering committee and each divisional management team has responsibility for identifying and managing any material risks and opportunities and business performance including against the climate change strategy, in accordance with the Group’s Risk Management Framework. Divisional audit, risk and compliance committees also oversee climate change-related risks for each division.
From the 2020 financial year, climate change risk management and opportunity assessment will be further embedded into the existing annual risk reviews and the corporate plan processes.
Since 2014, Wesfarmers has considered an internal carbon price as part of capital allocation decisions for projects likely to result in direct carbon emissions. These governance arrangements facilitate the consideration of potential financial and non-financial impacts of a range of climate scenarios and build resilience into our mitigation and adaptation efforts.
Development of a Group climate change strategy
Wesfarmers’ climate change strategy sits alongside our environmental, energy, waste and water initiatives. By taking a proactive approach to managing climate-related risks and opportunities throughout the portfolio, we aim to prioritise those projects that achieve abatement at a relatively lower marginal cost.
During the 2019 financial year, Wesfarmers completed a Group-wide scenario analysis to understand the potential risks and opportunities associated with climate change and to strengthen the climate change resilience of the Group. As part of the analysis, each division undertook a detailed risk assessment and examined strategic opportunities.
Each division has assessed three distinct climate change scenarios. The scenarios are not forecasts or predictions nor are they intended to fully describe possible future outcomes. Rather the scenarios are intended to draw attention to the key factors that may impact our businesses. While the scenarios draw upon global practice and scientific information, it is important to note that they are hypothetical and the future may resemble none, one or some of the scenarios.1
1 TCFD Technical Supplement: The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities (June 2017)
The three scenarios reflect, respectively, the limiting of global average temperature increases above pre-industrial levels by 1.5°C, 2°C and 4°C by 2100. Each scenario was assessed over the short term (1 to 5 years), medium term (5 to 15 years) and long term (15+ years). The scenarios combine elements of the International Energy Agency’s 2017 World Energy Outlook, the Representative Concentration Pathways established by the IPCC’s Fifth Assessment Report and the Global Climate Models available from the Climate Change in Australia Projections for Australia’s NRM Regions Report. The three scenarios are outlined in the table below.
Physical and transition risks
Wesfarmers has assessed two broad categories of climate-related risks for our divisions – risks of significant physical impact (physical risks) and risks associated with the transition to a lower carbon economy (transition risks). We have done this to deepen our understanding of ways to mitigate and adapt to those risks and to build resilience during the transition to a low carbon economy.
The physical and transition risks need to be considered in the context of the diversity of Wesfarmers’ businesses including in industry, operations, products, supply chain, customers, geography and scale. Even where a risk applies to several or all of our businesses, that risk is likely to impact each business differently.
Wesfarmers adopts a proactive approach to managing climate-related risks and opportunities. We respond to changes in climate with diverse strategies, appropriate to each business, to reduce our environmental footprint while also achieving long-term sustainable growth.
While climate change presents risks, there are also opportunities for the Group and our businesses. Consistent with our value-creating strategies, the Group will continue to consider opportunities to invest in existing businesses and take advantage of the flexibility of the Wesfarmers conglomerate model to renew the portfolio through opportunistic and value-accretive acquisitions or divestments of businesses. This may include businesses with particular climate-related characteristics. In assessing these opportunities, the Group applies a long-term horizon to its disciplined evaluation of investment decisions.
Across the Group’s existing businesses, our climate-related opportunities are in five broad categories: resource efficiency and cost savings, renewable energy, new products and services, access to new markets and resilience in our supply chain.
Climate change metrics for this year
Wesfarmers’ Climate Change Policy is designed to ensure that the Group and its businesses are managed with a carbon awareness. Consistent with the Climate Change Policy, we report regularly on key metrics in order to measure our progress and hold ourselves accountable to our shareholders and other key stakeholders.
This year, Wesfarmers emitted a total of 1,558 thousand tonnes of carbon dioxide equivalent (CO2e) in Scope 1 and Scope 2 emissions. Our Scope 1 emissions predominantly came from the manufacture of ammonia, ammonium nitrate, sodium cyanide, LPG and LNG as well as the use of natural gas and fuel in our retail businesses. Our Scope 2 emissions came from electricity use, predominantly in our retail businesses.
Our Scope 1 and Scope 2 emissions were eight per cent more than last year (adjusted to reflect the Coles demerger and other divestments during the year). The increase in our emissions is largely attributable to WesCEF's increased EGAN production levels in response to ongoing disruption at the competing Burrup plant and a reduction in abatement efficiency of the catalysts in the nitric acid plants. Reinvestment in the catalyst is planned for 2020, during scheduled maintenance shutdowns. It also reflects the net impact of growth in our store network and the introduction of new energy-efficiency projects in our businesses.
This year, our total energy use increased by 11 per cent compared to the prior corresponding period, with 19 petajoules of energy consumed.
The graph below shows the Group’s Scope 1 and Scope 2 emissions for FY18 and FY19, by division.
Our Climate Change Policy and emissions targets
Wesfarmers has recently introduced a Climate Change Policy and set 2025 emissions targets for our divisions.
The policy acknowledges the scientific consensus on climate change and the diverse effects that climate change may have on our businesses, shareholders, customers, team members and the communities in which we operate.
The policy is designed to ensure that the Group and its businesses continue to be managed with a carbon awareness. It reflects the Group’s desire to support the global goal of reducing greenhouse gas emissions, consistent with the Paris Agreement. Consistent with the Wesfarmers’ model of divisional autonomy, the policy operates at a divisional level with a focus on governance, targets, risks and opportunities.
The Board and senior executives are provided with information to consider the potential impact of climate change on our businesses including risks and opportunities. The Board approves policies and sets targets.
Each division must set Scope 1 and Scope 2 emissions targets for the year ending 30 June 2025, based on 2018 emissions levels. The targets must reflect the Group’s desire to support the global goal of reducing greenhouse gas emissions, consistent with the Paris Agreement. The targets must be approved by the Board. Each year, as part of their operating cycle, the divisions must forecast and report against the policy and their targets, and assess the risks and opportunities associated with climate change.
Potential for baseline changes
The policy provides flexibility to accommodate significant changes to the scale of an existing business. Changes to a baseline must be approved by the Board.
Mergers and acquisitions
The policy recognises the dynamic and evolving nature of the Group and specifically contemplates changes to the portfolio. Where Wesfarmers acquires a business or operation, that business or operation must, within a reasonable timeframe, comply with the policy and establish an appropriate emissions target.
With effect from July 2020, Wesfarmers senior executive performance goals to include the requirement to demonstrate progress on sustainability initiatives including an assessment of performance against this policy and towards the relevant emissions targets.
Our emissions targets
Targets have been set for each division or business, as appropriate. No single Group-wide target has been set. Responsibility for complying with the Climate Change Policy and meeting targets is with divisional management, with oversight by the Wesfarmers Board and Leadership Team. The target for each business reflects its particular attributes including its emissions profile, expected future growth, recent emissions reductions and opportunities to reduce emissions.
Sources of Wesfarmers Scope 1, 2 and 3 emissions
The graphic below illustrates the sources of Wesfarmers’ Scope 1, Scope 2 and Scope 3 emissions, with reference to the Greenhouse Gas Protocol (GHG Protocol).
Scope 3 emissions
Historically, Wesfarmers’ main focus has been on our own emissions from our divisions. Increasingly, Wesfarmers is focused on developing a more comprehensive understanding of our carbon footprint including our Scope 3 emissions and emissions in our supply chain and as our products are used by customers.
Across Wesfarmers, Scope 3 emissions derive largely from the production of goods for sale by our suppliers, transportation and waste generated across our operations.
The divisions have previously reported Scope 3 emissions from the following sources, consistent with the methodologies and protocol categories in four GHG Protocol Corporate Value Chain (Scope 3) Accounting Reporting Standard:
(3) Fuel- and energy-related activities using the average data method;
(5) Waste generated in operations using the waste type-specific method;
(6) Business travel using the distance-based method; and
(15) Investments using the investment-specific method.
During the year, the divisions continued to work on expanding their assessment of Scope 3 emissions in the following additional GHG Protocol categories:
(1) Upstream-purchased goods and services using the spend-based method for Bunnings and Officeworks and the average data method for the Kmart Group and WesCEF;
(4) Upstream transportation and distribution using the distance-based method for all divisions;
(11) Downstream use of sold products using the average data method for the Kmart Group; and
(12) Downstream end-of-life treatment of sold products using the average data method for the Kmart Group.
GRI Standards reference: GRI 103-1, GRI 103-2, GRI 103-3, GRI 302-1, GRI 302-3, GRI 305-1, GRI 305-2, GRI 305-3, GRI 305-4, GRI 305-5, GRI 307-1