Scenario analysis and climate strategy

Scenario analysis and climate strategy

In 2020, we initiated a process to align strategy and reporting with the increasingly urgent challenge of climate change. As guidance we used the TCFD recommendations, which guide companies to report transparently on opportunities and risks arising from climate change in four areas: governance, strategy, risk management, and metrics and targets. Analysis of the climate scenarios enabled us to identify 16 risks and 15 opportunities and respectively 33 risk management methods and 36 initiatives, all of which are included in our Business Plan, which envisages achieving the SBTi-validated greenhouse gas emission reduction target (-37% by 2030, compared to 2019). Risks and opportunities, and their respective management methods and initiatives, are updated annually within the risk analysis and business plan definition processes.

Scenario analysis is a methodology used to test the resilience of business plans under different assumptions of future developments. In the context of climate change, analysis of the scenarios helps us understand how physical and transitional climate opportunities and risks may affect our business over time.
To conduct its analysis, Hera Group selected the two most relevant scenarios out of nine taken as a starting point.

The analysis of the ETP 2DS and RCP 8.5 climate scenarios identified eight physical risks, eight transition risks, and 15 opportunities. Each risk and each opportunity has been linked to:

• a timescale;

• a priority level (defined as the combination of the level of likelihood that the context in which Hera operates will change as described by the risk/opportunity and the impact of the risk/opportunity on the business);

• one or more management methods (for risks) and one or more business initiatives (for opportunities). A total of 33 management methods were identified to mitigate risks and 36 initiatives to seize identified opportunities.

Climate change is one of the greatest challenges facing humanity today. Accepting this challenge means initiating an ecological transformation of technology, the economy and society. Fossil fuels are one of the main causes of climate change and it is therefore essential to reduce their consumption to limit the increase of the main greenhouse gas, carbon dioxide.

The Group's commitment in this area starts with numerous actions taken in terms of mitigation and adaptation. The Group's strategy for climate change mitigation mainly consists of:

• purchasing renewable electricity to power its business;

• initiatives and projects to reduce its carbon footprint. For example: energy efficiency plans compliant with ISO 50001 certification and lower environmental impact for Hera’s fleet;

• increasing production of energy from renewable sources (in particular biomethane, geothermal and photovoltaic energy);

• offering solutions to reduce the carbon footprint of customers in all segments (households, condominiums, businesses, and public administration. For example: sales of electricity from renewable sources and methane gas with CO2 emissions offsetting, additional services to households and businesses for energy efficiency, district heating development, energy efficiency and electricity from renewable sources in public lighting, energy upgrade of buildings, support for urban electric transportation;

• promotion and implementation of circular economy initiatives, such as separate waste collection, commitments on plastic recycling, production of biomethane from organic waste;

• implementing technological innovation projects and initiatives for a more complete environmental sustainability of its businesses;

• developing initiatives, also partnering with other companies, aimed at developing hydrogen as an energy carrier.