Illustration of Climate-Related Risks and Opportunities
In 2022, the Risk Management department coordinated the identification and prioritization of climate-related risks and opportunities taking the ‘Taskforce on Climate-related Financial Disclosure’ (‘TCFD’) framework into consideration. The following section summarizes the main risks and opportunities that are relevant for adidas. Given the different time horizon and complexity of climate-related risks and opportunities, the overview is presented separately from the illustration of risks and opportunities in the risk and opportunity report. We do not expect this to result in any additional material risks and opportunities for the forecast for fiscal year 2023 compared to the explanations given in this Risk and Opportunity report.
Based on the TCFD framework, climate-related risks are categorized as physical and transitional risks.
Physical risks resulting from climate change can be event driven (acute) or longer-term shifts in climate patterns (chronic).
- Acute risks, such as storms, wildfires, and floods, could damage our own or our business partners’ properties and lead to business disruptions.
- Chronic risks such as changing weather patterns could affect crop yields (e.g., cotton), rising sea levels could threaten coastal locations and lead to asset write-downs, and increases in average temperatures and heat waves could lead to lower participation in sports and reduced productivity of our own and our suppliers’ workforce.
Transitioning to a lower-carbon economy may entail extensive policy, legal, technology, and market changes to address mitigation and adaptation requirements related to climate change.
- Policy risks, such as increases in pricing of greenhouse gas emissions, mandates on existing or new products and exposure to litigation for non-compliance with emerging regulations.
- Market risks, such as changes in consumer behavior and a decrease in global economic growth, which could lead to a reduced consumer demand, increased commodity and energy prices, increased insurance costs, and reduced capital availability and market valuation due to stakeholder concerns about resilience to climate change impacts.
- Reputation risks, such as the stigmatization of the fashion and sportswear industry leading to a decrease in employer attractiveness and negative stakeholder feedback.
- Technology risks, such as the costs to transitioning to lower emission technologies in the supply chain.
- Products and services, such as the development of more sustainable (low-emission) products and services that could meet consumer preferences and lead to a competitive advantage and increased consumer demand.
- Resource efficiency and energy source, such as using more efficient production and distribution processes (including our suppliers).
- Markets, such as increased capital availability (green financing) and market valuation due to climate change resilience and increased employer attractiveness due to strong environmental performance.