Climate risks taken account of in financial statements

VINCI – Annual report – 31 December 2021

Industry: utilities

3. Specific arrangements

Climate risks

Looking ahead to 2030, the Group has adopted a new environmental strategy, aiming to:

  • achieve a 40% reduction in direct greenhouse gas emissions by 2030 compared with 2018 levels;
  • reduce indirect emissions by taking action across the Group’s entire value chain, including all business lines;
  • adapt infrastructure and the Group’s businesses to make them more resilient to climate change.

In its accounts closing process, VINCI now identifies the main climate risks in order to assess their potential impact on its financial statements. Specific information was provided in the accounts closing instructions and disseminated to all Group subsidiaries and mainly related 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.

The main risks identified relate to physical risks, including flooding and typhoons, and transition risks associated with regulatory changes, such as France’s 2012 thermal regulation and 2020 environmental regulation, the Energy Performance of Buildings Regulations in the United Kingdom, Germany’s Buildings Energy Act, and more generally the revision of the European Union’s Energy Performance of Buildings Directive (EPBD).

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 anticipated regulatory changes 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.

  • Changes in regulations anticipated in the short term 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.

  • Regulatory changes 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, namely a number of coal-fired power plants in Poland and the United States that represent 1.2% of the Group’s total energy consumption.

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 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 2021 financial statements.