VINCI – Annual report – 31 December 2022
Industry: utilities
3. Specific arrangements
3.1 Climate risks
Looking ahead to 2030, the Group has adopted an environmental strategy aiming to:
- reduce direct greenhouse gas emissions (Scopes 1 and 2) by at least 40% by 2030 compared with 2018 levels;
- reduce indirect emissions (Scope 3) by at least 20% by 2030 compared with 2019 levels, by taking action across the value chain of the Group’s businesses;
- adapt infrastructure and activities to improve their climate resilience.
The main risks identified relate to physical risks, including floods and typhoons, and transition risks such as market uncertainties relating to possible carbon taxes on fossil fuels and the consequences of the EU Taxonomy for sectors excluded from it (see the section of the Report of the Board of Directors regarding the mapping of the Group’s major environmental risks).
Physical risks are usually covered by property/casualty insurance policies or taken into account in estimates of margins on completion. In general, when a loss occurs, the negative impact (the part of the risk that is not covered) is taken into account in margins on completion for construction contracts, or recognised in expenses for the period in question. Certain physical risks may also result in opportunities or an increase in business levels, since some subsidiaries specialise in site clean-up work and/or repairs to damaged infrastructure following major climate-related events such as hurricanes, storms and floods.
The main transition risks relating to developments in the markets in which VINCI operates have also been reviewed to the best of the Group’s knowledge. The Group’s ability to respond to these changes with sufficient speed could determine its success in winning new contracts.
- Short-term market developments and upcoming changes in regulations are factored into cash flows, while those expected in the medium to long term are addressed through sensitivity tests.
For example, the transition to new building materials such as low-carbon concrete would not lead to major additional expense, to the extent that the construction company could pass it on to the project owner in its invoices.
- Longer-term market developments relating to the environmental transition are harder to anticipate and quantify, but should not have a material impact on the useful lives of the Group’s assets. At this stage, VINCI has identified very few assets that cause high levels of pollution, only a small handful of coal-fired power plants in Poland and the United States that represent less than 2% of the Group’s total energy consumption.
Certain expected market developments, such as the faster pace of energy retrofits of existing buildings and the growth of low-carbon forms of transport are also opportunities for the Group. These are presented in the report of the Board of Directors in the section relating to market opportunities stemming from the environmental transition.
VINCI’s acquisitions process includes a review of environmental risks, which is presented to the Risk Committee when it meets to consider acquisition opportunities.
In its accounts closing process, the Group also now identifies the main climate risks in order to assess their potential impact on its financial statements. Specific information requests and areas for attention were included in the accounts closing instructions and disseminated to all Group subsidiaries, relating in particular to:
- reviewing the useful lives of certain assets;
- reviewing margins on completion for certain construction contracts;
- factoring expected impacts on future cash flows into impairment tests for non-current assets;
- assessing risks to determine the amount of contingency provisions (including provisions for major repairs in certain concessions).
The Finance Department works with the Environment Department, which has been allocated specific resources for this purpose, to ensure that the commitments made by the Group are consistent with their recognition in the financial statements.
In VINCI’s view, its assessment of climate risks is taken into account correctly and is consistent with its commitments in this area. Factoring in these elements did not have any material impact on the Group’s 2022 financial statements.
3.2 Consequences of the conflict between Russia and Ukraine and the macroeconomic environment
Conflict between Russia and Ukraine
The direct financial consequences of the conflict between Russia and Ukraine are limited for the Group, since it does not have any material exposure to either country. The Group’s exposure mainly consists of equity interests held by VINCI Concessions in several companies in Russia: its 50% stake in the concession company for section 0 of the Moscow–St Petersburg motorway (M11), its 40% stake in the company set up to operate sections 7 and 8 of the same motorway under a public-private partnership, and its 50% stake in a road operations company. The value of these interests has been written down to zero.
Macroeconomic environment
In a geopolitical and economic context that is uncertain and volatile, the Group is paying particularly close attention to the possible effects of cost inflation, disruption to certain supply chains and rising interest rates.
- In the Energy and Construction businesses To protect itself against inflation, the Group has become more selective in terms of new contracts, and has decided to stop entering into medium- and long-term contracts if they do not include price adjustment clauses, except where specific provisions protect it from the risk of cost inflation or in special circumstances.
Most of the Group’s projects are relatively short in duration, particularly those carried out as part of the recurring business activities of VINCI Energies and Cobra IS and in roadworks, which means that changes in costs can be factored into quotes for new contracts to the extent possible. Some long-term contracts contain price adjustment clauses based on changes in sectoral indices. In particular, construction contracts signed with public sector customers in France fall into this category.
As regards the availability of the materials and equipment necessary to complete projects, VINCI’s decentralised organisation means that the Group’s companies have a diverse range of procurement sources, which is an advantage in the current operating environment. In addition, to guard against supply shortages, the Group’s companies may order some of their supplies ahead of time.
- In the Concessions business Price increases relating to the infrastructure managed by the Group (motorways and airports) are generally determined by contractual provisions that take the level of inflation into account, thereby offsetting at least some of this risk.
- In the VINCI Immobilier business line Rising interest rates have led to an increase in borrowing costs. Combined with higher prices, this trend is putting pressure on consumer demand for residential property. Meanwhile, investors in non-residential properties (offices) are now demanding higher yields.
Finally, the current macroeconomic environment has led to a tightening of monetary policy around the world and higher interest rates. This is making financing more expensive for the Group and its subsidiaries. Given the circumstances, VINCI is taking particular care to maintain its good level of liquidity (See Note J, “Financing and financial risk management”).
Accounts examples 