Burberry Group plc – Annual report – 30 March 2024
Industry: retail
TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES
FCA Listing Rule 9.8.6R (8)
The Company has included in its Annual Report climate-related financial disclosures consistent with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations and recommended disclosures.
Our approach to TCFD reporting
Burberry has a longstanding commitment to addressing the impacts of climate change and is taking significant steps to advance our decarbonisation agenda. Taking into consideration the net zero commitments of the countries we operate in, we have pledged to become Net Zero by 2040, which is ahead of the UK Government’s Net Zero by 2050 target and the EU’s aim to be ‘climate-neutral’ by 2050. Our emission reduction targets are aligned to a 1.5°C pathway and have been validated by the SBTi. To achieve this, we are committed to continued emissions reductions across our business and supply chain. See the Planet section on pages 41 to 47 for further details.
Since 2016, we have reduced our market-based scope 1 and 2 emissions by 93%, maintaining our commitment to consume 100% of our electricity from renewable sources. In addition, we have reduced our scope 3 emissions by 45.9%^ since our FY 2018/19 base year, against which we are measured for our 2030 and 2040 science-based targets.
We have adopted the recommendations of the TCFD and since FY 2019/20 we have reported on its four thematic areas: Governance, Strategy, Risk management, and Metrics and targets. This section builds on our previous reports and describes our approach to scenario analysis, the results of the scenario analysis and the actions taken in response to these results. Climate change and the transition to a low-carbon economy also present opportunities for efficiency, innovation and growth, all of which are built into our net zero ambition.
The Burberry TCFD Basis of Reporting outlines how we have prepared the Financial Statements and disclosures, considering relevant TCFD guidance publications and the principles for effective disclosure. We have engaged EY as independent auditors to provide a limited assurance statement in accordance with ISAE 3000 on our FY 2023/24 TCFD disclosures. The TCFD Basis of Reporting and Assurance Statement are available on Burberryplc.com.
Governance
Board oversight
The Board is responsible for ensuring our approach to sustainability is integrated into and implemented across the business. The governance framework of committees and advisory forums provide updates and key information to the Board to ensure it can make informed decisions. Our governance framework is outlined on page 107 and more detail on the roles of the Board and its Committees is set out in the Matters Reserved for Board Decision, and its Committees’ terms of reference, which are available in the Corporate Governance section of Burberryplc.com. When reviewing annual budgets, the Board considers climate-related issues, including spend associated with our Burberry Beyond strategy. The Board also considers colleague bonuses aligned to our responsibility targets. The Board is also responsible for overseeing and monitoring the management of risks and opportunities, including those related to climate change.
Further information on the risk management approach is included in the Risk and Viability Report on pages 83 to 90.
Management oversight
The Company’s strategy on environmental and climate-related issues is governed by the Sustainability Committee, which convened nine times in FY 2023/24 and is chaired by the CEO. The Committee plays an important decision-making role in supporting Burberry’s Responsibility strategy, with membership including senior leaders from across the organisation who are responsible for the execution of this within their respective business areas. Topics discussed by the Sustainability Committee in FY 2023/24 included the net zero transition plan, ReBurberry initiatives and our nature strategy. The Company Secretary or their designate is secretary to the Committee.
During FY 2023/24, the Board received two updates from the Sustainability Committee, which included progress against the Company’s sustainability-related goals and targets. The Board also received an update on Burberry’s climate ambitions, including the revision of our scope 1 and 2 carbon reduction target, which was approved.
The Risk Committee, which is chaired by the CFO, receives annual updates on the outputs of the climate-related scenario analysis and related proposed TCFD disclosures led by the Sustainable Finance team. The Audit Committee also receives this update on an annual basis. The Board reviews our climate-related reporting as part of its overall assessment of the fair, balanced and understandable nature of the Annual Report.
Knowledge and skills
Burberry seeks to ensure that our Board and senior leadership have the relevant knowledge and skills to help us build a business that is both successful and responsible. Details on the sustainability skills and experience of these Board members can be found on pages 95 to 99.
We are committed to having a suitable pool of internal sustainability experts across our business with the relevant knowledge and skills to support decision-making. Team members involved in the execution of the Burberry Beyond strategy participate in external training courses and educational events, including the Accounting for Sustainability Academy, to keep abreast of relevant climate- and nature-related topics. We also educate employees on various sustainability-related issues through frequent engagement, focused events, strategic communications and volunteering opportunities. See Embedding Burberry Beyond on page 36 for further details.
Remuneration
The remuneration of the Executive Directors is partly linked to our progress in building a more sustainable future, including progress towards the Group’s longer-term climate goals, via the annual bonus plan and a sustainability underpin in the Burberry Share Plan (BSP).
In FY 2023/24, 25% of the annual bonus for Executive Directors was once again linked to performance against strategic objectives linked to our strategy and brand as well as our environmental and social targets. There will be a sustainability underpin in the 2024 BSP award for the Executive Directors.
In FY 2023/24 we began linking a proportion of our annual corporate bonus plan for the wider workforce to the achievement of sustainability metrics in our Product and Planet pillars. This has been well received by colleagues and demonstrates the value we place on sustainability as part of our strategy.
See Embedding Burberry Beyond on page 36 for further details.
^ This metric was subject to external independent limited assurance by PricewaterhouseCoopers LLP (PwC). For the results of that assurance, see PwC’s Independent Limited Assurance Report and Burberry’s Responsibility Basis of Reporting FY 2023/24 on Burberryplc.com/impact/Resource-Hub.
Strategy
This section describes our key climate-related risks and opportunities, their potential impact on our business and its resilience to such impacts, which has been assessed using scenario analysis as described below. Our strategy to address climate-related risks is integrated into our business strategy and decision-making in areas such as capital allocation, investment appraisal, supply chain planning and raw material sourcing.
Our Burberry Beyond 2040 report details our strategic direction and plan to reduce GHG emissions across our operations and supply chain. With the majority of our GHG emissions arising from our extended supply chain, we are focusing on five key impact areas that each have defined actions to drive progress: Raw Materials, Circularity, Product-related Waste, Supply Chain Decarbonisation and Sustainable Transportation. Further details on initiatives under each of these areas are provided in the Decarbonising our Value Chain section of the Burberry Beyond Climate Positive 2040 report, and in the Environmental and Social Responsibility section on pages 35 to 62.
Background to scenario analysis
Scenario analysis is a process for identifying and assessing the potential implications of a range of plausible future states under conditions of uncertainty. Scenarios are hypothetical constructs and not designed to deliver precise outcomes or forecasts. Instead, scenarios provide a way for the business to consider how the future might look if certain trends continue or certain conditions are met, and to assess Burberry’s strategic resilience. Scenario analysis is led by Sustainable Finance, with input from Supply Chain, Corporate Responsibility, Commercial and Finance teams across the business.
Our approach to scenario analysis
Our scenario analysis incorporates the Company’s financial forecasts, operational footprint, supply chain information and environmental data to create a digital twin representation of the business. The product portfolio is modelled based on our strategy, with the Company’s value chain being modelled using historical data. This information is combined with industry reference scenarios on climate emission pathways, including assessments by the Intergovernmental Panel on Climate Change and International Energy Agency, to consider the potential impact of physical and transition risks on the business.
Our scenario analysis considers the impacts of both physical and transition risks:
In addition, we have considered the risk that a market shock caused by transition to a low-carbon economy would impact the Company’s cost of debt and how low-carbon innovations would devalue the Company’s technology. We have concluded that these risks are not significant at this time due to the Company’s net cash position, focus on renewable energy consumption and absence of carbon-intensive machinery. We will continue to monitor and report on these risks.
Scenarios evaluated
The impact of physical and transition risks has been considered over a range of emission trajectories and global average temperatures. This is in line with the recommendations of the TCFD to select a set of scenarios that cover a reasonable variety of future outcomes, both favourable and unfavourable. We have also included a low-emissions scenario aligned to the Paris Agreement aspiration to limit global warming to 1.5°C, as per the TCFD recommendation that organisations use a 2°C or lower scenario.
These are defined opposite, alongside a summary of the potential global impact of physical and transition risks under these scenarios.
Time horizons considered
We have defined our time horizons as short term (five years), medium term (five to 20 years) and long term (more than 20 years). The time horizon used for our detailed scenario analysis is a short-term outlook of five years, during which we can influence decisions through strategy, capital allocation, costs and revenues. Typically, three years is used for our financial and operational planning, as this is sufficient to cover almost all approved capital expenditure projects, and most current business development projects will be completed in the three-year period. Our viability assessment is also aligned to this time period, with going concern typically considered over 18 months. We have extended the period to five years using a growth assumption, which more closely aligns with our expected asset lifetimes and strategic plans.
Building on our detailed analysis, which covers a five-year time horizon, we have also considered the impact of climate-related risks in the short-to-medium time period of 10 years, which we will use to support our strategy in this time frame.
Summary of scenario analysis results
Our scenario analysis considers the financial impact of climate-related risks on Burberry. This entails estimating the loss of value to the Company’s discounted cash flows over the next five years assuming no mitigating actions are taken.
Overall, the results of our scenario analysis indicate that the physical and transition risks associated with climate change could impact the business in the short, medium and long term. The size of the impact will depend on the nature and speed of the global transition towards a lower-carbon economy.
The 1.5°C scenario would have most impact on Burberry in the short-to-medium term before considering any mitigating actions.
Beyond a five-year time horizon, the level of uncertainty increases. Transition risks are expected to be the most impactful in the short-to-medium term, continuing the trends our five-year scenario analysis have identified. Physical risks are expected to become most impactful in the long term, with the size of the impact dependent on the success of global initiatives to limit the repercussions of climate change. These long-term physical risks may disrupt our supply chain and create operational challenges. Our commitment to more sustainable, low-impact materials and our continued focus on innovation are key to limiting this impact. We will remain agile and continue to monitor this risk, informed by the latest scientific understanding of climate change. We will also continue to consider and identify how the results of our scenario analysis may be utilised to inform future strategic planning where appropriate.
Each physical and transition risk was modelled independently due to the complexity and uncertainty associated with measuring the interconnectivity of risks and how they influence each other. Planned future mitigating actions, including those to deliver our ambition to be Net Zero by 2040, have not been taken into consideration in the scenario analysis.
Summary of response to scenario analysis results
At Burberry, we believe our long-term success depends on actively addressing the potential impact of climate-related risks and adapting to potential opportunities. As such, we have adopted strategies and actions to mitigate these risks and ensure our strategy adapts to the potential opportunities. Where such actions have quantifiable investments associated with them, these are embedded within our Board-approved financial plans, which are translated into annual budgets and detailed in the Our Strategic Response section in the Risk tables on pages 70 to 74. We have also considered the impact of climate change in the preparation of our Financial Statements, which can be seen on page 165.
As the scientific understanding of climate change and availability of data evolves, we expect greater rigour and sophistication in the approach to scenario analysis. We aim to continue developing and updating our scenario analysis to support our assessment of the resilience of our business strategy to climate-related risks and ensure relevant mitigating strategies are in place.
The Risk tables on pages 70 to 74 show the detailed results of our scenario analysis and our strategic response. The financial impact represents the estimated loss of value to the Company’s discounted cash flows over the next five years, assuming no mitigating actions are taken. This impact has been rated as ‘High’, ‘Medium’ or ‘Low’, reflecting materiality to the Company’s Financial Statements.
Detailed results of our scenario analysis
Opportunities
In addition to these climate-related risks, there are also opportunities for mitigating risks and fostering growth for the business during its transition towards a lower-carbon economy.
Burberry integrates its approach to identifying climate-related opportunities within its broader strategy aimed at effecting positive change with sustainability as a focal point. Supported by the company’s overarching net zero ambition, the Sustainability Committee plays a pivotal role in identifying, prioritising, and realising climate-related opportunities. The committee receives pertinent opportunities from internal teams working on the Planet and Product pillars, which are then evaluated for feasibility and potential impact. Examples of such climate-related opportunities are summarised below.
We recognise the potential impact of climate change, which remains a principal risk for the business. While there are challenges ahead, the business is well positioned to both address these and capitalise on the identified opportunities, which will arise in the transition towards a lower-carbon economy. Our net zero ambition will be key in ensuring Burberry’s resilience to the potential impacts of climate change, supported by our wider Burberry Beyond strategy (see Responsibility section pages 35 to 62) and underpinned by ambitious targets, which are detailed in the Metrics and targets section on pages 77 to 78.
Risk management
Climate change has been identified as a principal risk to Burberry, see page 86 and has the potential to impact our business in the short, medium and long term, as detailed in the Strategy section on pages 68 to 76.
The overarching approach to identifying climate-related risks is the same as for all principal risks and is described on pages 83 to 90. Additionally, for climate-related risks, we have undertaken qualitative scenario analysis since FY 2018/19 and a quantitative scenario analysis since FY 2019/20 to support our identification and understanding of such risks.
For each principal risk we have a risk management framework detailing the controls in place and those responsible for managing the overall risk and the relevant mitigating controls. We monitor risks throughout the year to identify changes in principal risk profiles. Management of climate-related risks is distributed throughout the organisation, depending on where the risk resides. For example, climate-related risks in relation to raw materials in the supply chain are managed by our Sourcing team responsible for buying commodities.
The cross-functional TCFD working group previously defined the risk management methodology and approach for identifying and assessing climate-related risks and mitigating controls. Using scenario analysis, the working group quantified climate-related risks to Burberry and evaluated their size and scope. This supported the working group in prioritising risks and assessing the resilience of our business strategy to potential climate-change impacts.
When sustainability and climate-related risks are assessed, existing mitigating activities and controls are highlighted and, where relevant and appropriate, additional activities and controls are implemented if risks fall outside risk tolerance. Progress against these mitigating activities is assessed by the Risk Committee and is subject to independent review by Group Internal Audit as part of the annual audit plan. During the year, the Audit Committee reviewed the progress made against the four TCFD pillars, the scenario analysis undertaken and the proposed disclosure.
Climate-related risks and opportunities are continually monitored as part of our Enterprise Risk Management framework. This allows us to evaluate the relative significance of our risks based on their likelihood and impact, and to prioritise accordingly. The business has also developed a risk platform, which enables us to track our business objectives, including those which create or protect financial, social, environmental and reputational value.
We also monitor the environment for new and emerging risks and to keep abreast of evolving regulatory requirements. We will continue to develop our scenario analysis to improve our understanding of these risks and opportunities, aligning our strategy and actions accordingly.
Metrics and targets
We have several metrics and targets in place to monitor and manage the most significant risks and opportunities arising from climate change. These are outlined in the table on pages 77 to 78 and are linked to the risks modelled as part of the scenario analysis and the opportunities identified by the business.
Setting and monitoring targets is key to driving progress towards our Burberry Beyond strategy, and we have an extensive range of KPIs focusing on our four pillars of Product, Planet, People and Communities. These KPIs are integral to ensuring we both build a better world for the future generation and safeguard the long-term success of our business. See our Responsibility Data Appendix on Burberryplc.com, which includes further details on how we monitor performance in this space and the latest KPI data.
We have also considered the cross-industry climate-related metrics and targets recommended by the TCFD, and will continue to develop metrics and targets in relation to transition risks, physical risks and opportunities where they are deemed to facilitate comparability.
Our climate-related metrics and targets cover renewable energy procurement and GHG emissions reductions across scopes 1, 2 and 3. Burberry has appointed PricewaterhouseCoopers LLP (PwC) to provide independent limited assurance over selected Responsibility indicators as part of our Burberry Beyond strategy, as well as key metrics reported in our Global GHG emissions table on page 43. Metrics assured by PwC are denoted with a ^ throughout this Annual Report.
Reporting
We align our reporting on climate-related metrics to recognised standards, including the GHG Protocol, the UK’s Streamlined Energy and Carbon Reporting and the TCFD.
In line with the Large and Medium sized Companies and Groups (Accounts and Reports) Regulations 2008 as amended by the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013, our GHG emissions are set out on page 43.
In recognition of the importance of the TCFD and Sustainability Accounting Standards Board (SASB) being key ESG reporting frameworks for our stakeholders, we continue to produce a SASB-aligned disclosures report, which is available within our Responsibility Data Appendix on Burberryplc.com.
As part of the development of our transition plan, we have baselined the Company’s current position and set our net zero ambition (which can be found within our Planet section on pages 41 to 47). We have continued to monitor the developments of the UK Government’s Transition Plan Taskforce to ensure we align with its requirements. A key focus for us in FY 2024/25 is the alignment of our carbon disclosures with the UK’s Transition Plan Taskforce framework, which includes details of how we are aligning our business model, operations and products with a net zero economy. Alongside this, we are developing climate literacy training for Burberry colleagues to ensure our people have the skills and knowledge needed to support the successful delivery of our transition plan.
Since 2010, Burberry has been reporting to CDP, a not-for-profit charity, which, with the richest and most comprehensive dataset on corporate action on climate, is considered as a gold standard for environmental reporting. In 2023, Burberry was ranked by CDP in the Leadership band, receiving an A- for its climate change submission.
We recognise that meeting our climate-related targets is dependent on collective action. Foremost are countries implementing their Paris Agreement-aligned commitments and increasing them to more ambitious levels. Improving market conditions for clean energy supply, such as the rate of installation
of renewable electricity in many countries, reducing costs and the availability of purchase power agreements will help shift the rate of decarbonisation at scale. We believe we have a role to play in helping to shape the required policies and regulations. We collaborate with partners, suppliers and other organisations to achieve our ambition. These include the United Nations Global Compact, The Fashion Pact, The UN Fashion Charter, RE100, Race to Zero and Accounting for Sustainability which is part of the King Charles III Charitable Fund.
^ This metric was subject to external independent limited assurance by PricewaterhouseCoopers LLP (PwC). For the results of that assurance, see PwC’s Independent Limited Assurance Report and Burberry’s Responsibility Basis of Reporting FY 2023/24 on Burberryplc.com/impact/Resource-Hub.
Page 41 onwards
RISK AND VIABILITY REPORT (extract)
Page 165 extract
1. Basis of preparation (extract)
Consideration of climate-related matters
The Group has performed a climate-related scenario analysis as required by the Task Force on Climate-Related Financial Disclosures. This scenario analysis takes into consideration different climate-related scenarios, including a 2°C or lower scenario. Based on this scenario analysis, consideration has been given to the impact of climate-related risks on management’s judgements and estimates, including inventory provisions and the impairment of property, plant and equipment and right-of-use assets.
The incurred costs and investments associated with our sustainability strategy are reflected in the Group’s financial statements, including within inventories, property, plant and equipment, and operating profit.
The impact of climate-related risks on the consolidated financial statements for the 52 weeks to 30 March 2024 is not material. This is due to the time horizons in which physical risks are expected to be most significant not aligning to the useful lives of our assets and the investments we continue to make to mitigate market and policy risks.
The committed future financial investments associated with our sustainability strategy are included within our budget and three-year forward-looking financial plans. These financial plans have been used to support our impairment reviews and going concern and viability assessment. Future plans may incur additional investment on research and development, higher expenditure on raw materials and other as yet unidentified costs.
Accounts examples 