How prepared are we for climate change impacts on our business?

How would our company’s strategy perform under 1.5°C, 2.7°C or even 4°C warming pathway?

The Task Force on Climate-related Financial Disclosures (TCFD) has created a voluntary framework to help businesses identify, measure and report their financial implications of climate change. This framework was created to provide especially investors with information on how companies are dealing with climate-related issues. We at Metso Outotec acknowledge the importance of reporting climate-related financial information and support this initiative.

As part of the TCFD reporting we analyzed our organization’s strategy and resilience against different future scenarios. Our resilience was tested against  a future where the global average warming will be limited to 1.5 °C, which is also our strategic target, or where little has been done to combat climate change and we risk a warming of 4 °C . A “middle-of-the-road” scenario, 2.7°C, describes a future between these two extremes. The basis of our scenarios relies on the information and data provided by widely recognized organizations, such as the Intergovernmental Panel on Climate Change (IPCC), the International Energy Agency (IEA), and the World Bank.

The opportunities and risks in the “Right way” scenario

In the “Right way” scenario, the tighter regulation promotes our efficient solutions for customers in order to obtain their license to operate. Renewables and electrification create a strong demand for copper and battery metals and spending on infrastructure accelerates.

One of Metso Outotec’s four financial targets is directly linked to sustainability: progress in sustainability in alignment with the 1.5 °C commitment. The opportunities in the “Right way” scenario support this commitment and targets set. In addition, diversity of our businesses as well as focus and investment in enabling technologies gives us strategic resilience in this scenario. The “Right way” scenario is therefore considered to be the most desirable future outlook for Metso Outotec.

In the “Right way” scenario centralized supply model might not be viable in the future and operations in locations with higher quality ore might not be able to continue (e.g. due to strict regulations) and lower quality ore bodies must be used. In addition, new less energy consuming technologies can provide alternatives for grinding. This can be either an opportunity or risk for us. Therefore, in order to maintain a strong resilience, we will regularly review our strategy and approach.

The opportunities and risks in the “Half way” and “No way” scenarios

In the “Half way” scenario, tighter regulations are expected to create greater demand for water recycling and water efficiency solutions. Renewables and electrification also create a demand for copper and battery metals although to a lesser extent than in the “Right way” scenario.

In addition, opportunities arise from increase in spending on highways, railways and elevations, also to a lesser degree than in the other two scenarios. Whereas in the “No way” scenario significant spending on infrastructure is expected as a response to physical environmental hazards. Water scarcity may create difficulties, but at the same time it can also bring increased demand for water-efficient technologies. Due to diversity of our businesses Metso Outotec technologies can provide solutions to tackle future challenges in theses scenario as well as enable maintaining our resilience.

Some countries and areas where we have operations might become unviable due to problems with supply and logistics. However, our geographically diverse locations bring us a competitive advantage. Regional variance of politics, protectionism, trade restrictions and more severe weather impacts (both acute and chronic) can lead to an unpredictable global economy and different operational hazards (less severe in the “Half way” than in the ”No way” scenario). The risks in the “No way” scenario may be the biggest for Metso Outotec and additional measures and expenditure may be needed to adapt and ensure our resiliency in this scenario (to a lesser degree in the “Half way” scenario).

Further information

Why these scenarios?

• As we have committed to the journey of limiting the global warming to 1.5 °C, it was therefore natural to choose one scenario that describes a world where this is true: called the “Right way” scenario.
• The second scenario follows the International Energy Agency’s (IEA) Stated Policies Scenario which seeks to represent the world according to what is likely to happen, considering the initiatives that are currently been introduced and keeping in mind that even these are not enough to meet the Paris Agreement target of 2 °C. This is called the “Half way” scenario.
• The worst scenario aka the “No way” scenario reflects the world if we were to continue as usual with no real efforts to reduce our total emissions

It is however good to acknowledge that there is no “one” pathway to certain degree of warming and the scenarios here represent only one narrative for each temperature outcome.

Summary of findings