Risk management

Climate-related risks (physical and transitional) are managed through our embedded risk management framework and across our governance and reporting processes. Our approach ensures the identification, assessment and management of climate change risks to reduce impact and likelihood and maximise opportunities.

Mitigation metrics are aligned to limiting global temperature rises to 1.5°C. Adaptation metrics account for the risks and uncertainties associated with higher temperature rises (including 2°C and 4°C) and how the many potential variations in climate change impact the delivery of service improvements. Targets are set with risk and uncertainty included.

While climate change is largely a downside risk for our business, we have identified some potential opportunities. For instance, in addition to energy generation, a reduction in the frequency of extreme cold weather could reduce the number of freeze-thaw burst events and warmer conditions may improve the efficiency of biological treatment processes.

As part of our risk management activities, we have assessed our risks to identify those most adversely impacted by climate change. While the most significant are all physical risks, transitional risks are also managed through our risk management framework.

Failure to treat wastewater (exceedance of permits)

Failure of above ground water and wastewater assets (flooding)

Failure of wastewater assets (sewer flooding)

Water sufficiency event

Failure of the wastewater network (serious pollution)

Water network failure

Failure to treat sludge

Many of these risks are subject to complex modelling which incorporates the impact of climate change and the associated adaptation options in our long-term plans.

Our 25-year WRMP is a sophisticated example of a climate change risk assessment. We've worked with the United Kingdom Meteorological Office for many years to understand how weather metrics, like temperature and rainfall, affect the consumption of water by customers. We understand the likely fluctuations in how our supply system responds in different circumstances, defining the headroom required to take into consideration climate change uncertainty using the latest UK climate projections and drought indicators.

Our plan considers how resilient our water supply system is to a host of non-drought hazards related to climate change, including flooding, freeze-thaw, contamination, asset failure and power failure. We are planning a programme of work to improve resilience across the next 25 years.

DWMPs are being developed to offer the same level of climate change scenario assessments for sewerage planning.

We are in the process of incorporating longer-term climate change impacts more explicitly in our corporate risk framework by considering the scale of impact based on current controls under two scenarios to 2050 and 2100. This will be undertaken initially for the most significant climate risks, then all other climate risks, bringing several benefits. It further raises the profile of climate change adaptation and allows the board enhanced insight into climate risks from within existing risk management processes. It will highlight where climate risks are not well understood or where existing controls are deemed inadequate to manage the risk in the long-term to allow corrective action to be taken.

Looking ahead, we will need to undertake research to better understand how climate factors will impact some aspects of performance, continue to collaborate with others to better understand interdependencies and work in partnership to address risk, and cultivate innovation to find new ways to cope with operating in a different environment.

The following table highlights where further details recommended by the TCFD can be found in this report.

TopicWhere to find out more
GovernanceSee our corporate governance report. Our corporate responsibility committee report in the Corporate governance report provides a summary of committee discussions on climate change.
A summary of the board and its management committees can be found in the Corporate governance report.
StrategyDetails of our corporate strategy are in Delivering our purpose and our business model is in Our business model. See how we plan for the future Our business model and our approach to managing resilience on Our business model.
Risk managementOur risk management framework is presented on pages Our risk management, including our principal risks and uncertainties.
Metrics and targetsOur KPIs and other performance indicators can be found in how we measure our performance in How we measure our performance, with operational performance in Our performance in 2019/20 and financial performance in Our performance in 2019/20.