UK directors’ report, disclosure of greenhouse gas emissions, climate change disclosures

Burberry Group plc – Annual report – 28 March 2020

Industry: retail

STRATEGIC REPORT (extract 1)

OUR CONTRIBUTION TO THE UNITED NATIONS SUSTAINABLE DEVELOPMENT GOALS (extract)

Our Responsibility Agenda contributes to a range of the United Nations Sustainable Development Goals, where we feel we are uniquely placed to make a positive difference. We recognise the power of working in collaboration to drive real change in the industry, which is why SDG 17 runs across the breadth of our strategy enabling progress in all areas of our work.

COMPANY

We believe in respecting the environment and conducting our business in a responsible way. The success of our business over the long term depends on the environmental sustainability of our operations, the resilience of our supply chain and our ability to manage climate change impacts.

BECOMING CARBON NEUTRAL

Our goal is to be carbon neutral in our own operational energy use by 2022 and to obtain 100% of our electricity from renewable sources in the same time frame. Our commitments in relation to climate change extend beyond our business operations and activities.

We have two climate goals approved by the Science Based Target initiative (SBTi): to reduce our absolute Scope 1 and 2 greenhouse gas emissions by 95% by 2022 and our absolute Scope 3 greenhouse gas emissions by 30% by 2030 (all from a 2016 base year). The Scope 1 and 2 target focuses on emissions from our direct operations (including electricity and gas consumption at our stores, offices, internal manufacturing and distribution sites), while the Scope 3 target relates to indirect emissions in our extended supply chain (which includes the impact from the sourcing of raw materials and manufacturing of finished goods).The targets covering greenhouse gas emissions from Burberry’s operations (Scopes 1 and 2) are consistent with reductions required to keep warming to 1.5°C, the most ambitious goal of the Paris Agreement. To date, we have reduced our Scope 1 and 2 emissions by 82% compared to FY 2016/17.

At Burberry, to achieve our climate-related goals we focus on energy efficiency first and foremost. We drive energy efficiency across our stores by instilling good practice behaviour and installing more efficient lighting systems at our new and refurbished stores. We then reinvest savings into renewable energy procurement in the region, before finally offsetting any remaining emissions, reducing our emissions footprint to zero. We are now carbon neutral in our own operational energy use across 85% of our sites globally and procure 83%^ of our total energy (90%^ of electricity) from renewable sources.

Through engaging with our suppliers on energy efficiency and renewable energy, we have reduced emissions in the supply chain by more than 1600 tonnes of carbon. These initiatives, alongside our transition to more sustainable raw materials, are contributing to our Scope 3 science based target.

We are supporting the UN Climate Change’s efforts in the fashion industry and have taken a leadership position by collaborating with other brands to promote energy efficiency and renewable energy across the entire fashion industry. In addition, we signed the Fashion Charter Communique at the 25th session of the Conference of the Parties. The Communique encourages countries with major fashion production and consumer markets to partner with us to bring the industry in line with the Paris Agreement goal of limiting average global temperature rise to 1.5°C.

In FY 2019/20, we extended our commitment to carbon neutrality to our runway shows. See page 38 for further details of our Regeneration Fund, which is designed to reduce the carbon impact of our raw materials and improve biodiversity. Further information on our carbon commitments and impact can be found on page 34 and pages 110 to 115.

Note: Burberry applies an operational control approach to defining its organisational boundaries. Data is reported for sites where it is considered that Burberry has the ability to influence energy management. Data is not reported for sites where Burberry has a physical presence, but does not influence the energy management for those sites, such as a concession within a department store. Overall, the emissions inventory reported equates to 99% of our sq. ft. (net selling space). The Company uses the Greenhouse Gas Protocol (using a location and market-based approach to reporting Scope 2 emissions) to estimate emissions and applies conversion factors from Defra, IEA and RE-DISS. All material sources of emissions are reported. Refrigerant gases were deemed not material and are not reported. Combustion of fuel use from owned or leased transport is reported from 2018/19 FY onwards. Burberry has updated GHG data for FY 2017/18 and FY 2018/19 to account for updated emission factors and improvements in data availability and estimation methods. Further information about Burberry’s basis of reporting is available at Burberryplc.com.

REDUCING AND REVALUING WASTE

We are committed to revaluing waste across our operations and supply chain through our collaborative approach and creative spirit. We follow a clearly defined waste hierarchy to guide our workstreams. We continue to challenge ourselves with new and existing partners to reduce, reuse and recycle. Our work to address the systemic waste challenge facing the industry cannot be tackled alone, therefore we are working in collaboration with peers and partners, including the Ellen MacArthur Foundation.

A key element of our strategy is addressing waste from a creative point of view. We are engaging our creative community through training on circular design, which aims to reduce the amount of waste we produce by anticipating what the next life of a product will be. A range of product disassembly workshops have been carried out to help teams better understand the extended life of our products.

A creative approach has also been adopted by our Merchandising Computer Aided Design (CAD) team who have designed 3D runway and ready-to-wear samples, known as “Digital Product Twins,” to help reduce reliance upon physical sampling.

Our beautifully made products are designed to last and we are committed to helping customers enjoy them for as long as possible. In FY 2019/20, we handled around 14,750 repair and replacement part enquiries, ranging from Trench Coat re-proofing to repairing vintage items. This financial year, we also launched a pilot in the US with The RealReal, a luxury consignment marketplace where customers can consign secondhand luxury goods, to encourage our customers to extend the life of their products through resale. This offers us an opportunity to champion a more circular future.

We employ innovative solutions to repurpose products and offcut waste. In the UK, we continue to work with sustainable luxury company Elvis & Kresse, which revalues our leather offcuts by transforming them into accessories and homewares. In Italy, we continue to donate material to Progetto Quid, a not-for-profit co-operative, which upcycles excess materials into clothes and accessories, employing mostly women from vulnerable backgrounds. This financial year, we also launched a new partnership in Italy with Alta Scuola di Pelletteria Italiana, a leather school, and San Patrignano, an organisation supporting marginalised youth. The school will train San Patrignano residents in leather goods disassembly and repurposing using donated unsaleable Burberry leather products.

In addition, we have donated products and raw materials to various charities, design schools and colleges globally, including the Royal College of Art and the Manchester Fashion Institute. In 2018, Burberry became the first luxury company to cease destroying unsaleable finished products. As of 28 March 2020, we were running finished product revaluing pilots with 10 new partners.

We are mindful of ensuring that our supply chain partners also take responsibility for the waste generated during production, which is why we established a positive product attribute count to monitor and recognise waste recycling initiatives in our supply chain. We are also working to repurpose and reinvent products by adding seasonal and on-trend embellishments such as embroideries and appliquéd patches.

CONTINUING SUSTAINABLE PACKAGING INNOVATION

As a signatory of the Ellen MacArthur Foundation’s New Plastics Economy Global Commitment, we pledged to eliminate unnecessary and problematic plastic, to use 100% reusable, recyclable or compostable plastic, and to use at least 20% recycled content across all own-branded plastic packaging by 2025. We have made good progress towards our goal by removing plastic lamination from our branded retail and digital packaging.

All of our paper-based customer-facing packaging is reusable or recyclable and certified by the Forest Stewardship Council. As the packaging composition includes a minimum of 40% recycled coffee cups, since February 2019, Burberry has been responsible for recycling 58 million cups. We will work to further increase the use of recycled materials in our products and transport packaging, as well as support industry-wide scaling of alternative materials by 2025. We continue to constantly innovate and trial new packaging materials to find more sustainable solutions for our customers.

STRATEGIC REPORT (extract 2)

TASKFORCE FOR CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD)

Burberry is committed to implementing the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD).

A cross-functional working group has been established to assess and implement the required governance and strategy for climate-related risks and opportunities, and the metrics and targets used to assess and manage these.

Governance for managing climate-related risks and opportunities across the Group is incorporated into the existing governance framework as shown below. This includes oversight of implementation of the recommendations of the TCFD.

GOVERNANCE

A Sustainability Steering Group (SSG) was established in the year to review and oversee the Group’s strategy on environmental and social issues. The SSG will convene at least three times a year and is chaired by the Chief Executive Officer who is accountable for ensuring oversight of climate-related risks and opportunities, and is attended by the Chief Operating and Finance Officer, who is also a member of the Leadership Network for the Accounting for Sustainability (A4S) initiative. The cross-functional TCFD working group reports to the Risk Committee, which is chaired by the CO&FO.

We have evolved our governance structure to manage climate-related risks and opportunities and the Board has received updates on sustainability-related matters, including those related to climate change. These were supported by insights from independent sustainability strategy consultants.

Next Steps: The Remuneration Committee is considering how to include non-financial performance metrics including the achievement of ESG targets for senior leaders across the Group.

STRATEGY

Building on the scenario analysis undertaken in FY 2018/19 regarding forecasted climate-change impacts to 2040, this year the Group strategy team initiated a review of our broader sustainability commitment and identified key priorities and areas of risk that require increased focus.

The key risks that impact the overall Company strategy over the short, medium and long term include water scarcity, our carbon impacts and raw material availability. We have implemented a number of initiatives to help inform our longer-term strategy. These are discussed further in the Responsibility section (pages 60-71).

Our approach to sustainability and our commitment to the issue have been recognised. Burberry has received awards from The Walpole Awards for Luxury Business with a Heart; the RobecoSAM Sustainability Yearbook (Burberry received Gold Class Distinction), and has been included in the Dow Jones Sustainability Index for the fifth consecutive year.

Areas for focus over the next 12 months include ensuring climate change risks and opportunities are considered in our long-term business strategy and quantifying short-, medium- and long-term climate change risks and opportunities to inform business strategy and financial planning.

RISK MANAGEMENT

Climate change forms one of our Group principal risks (see page 92). This principal risk incorporates the six risk areas set out in the TCFD requirements as explained below.

During the year we performed an exercise to identify the short-, medium- and long-term risks and opportunities using the 2040 climate change scenario work performed in FY 2018/19. The cross-functional TCFD Working Group, which includes members from the Risk Management, Finance and Responsibility teams, has defined the risk management methodology and approach for identifying and assessing climate-related risks. This includes an assessment of impact and likelihood across several global temperature increase scenarios and incorporates an analysis of country-specific risk classification.

In addition to discrete exercises such as these, our Enterprise Risk Management process, overseen by the Risk Committee, enables us to identify, assess and manage all risks, both existing and emerging, that may impact our strategic objectives.

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. Progress against these mitigating activities are assessed by the Risk Committee, and are subject to independent and objective review by Internal Audit where they form part of the annual audit plan.

Through our continued use of the WWF Water Risk Mapping tool, we are able to identify facilities, which are exposed to substantive water risk driven by water pollution, water scarcity and flooding or other extreme weather events. We have also assessed the climate change risk in our supply chain by evaluating the exposure, vulnerability and readiness of the countries where our key supply chain partners are located.

Key next steps will be to build on the work we have done so far and to quantify the longer-term financial impact associated with identified risks against our current business model and consider whether any further mitigating controls and activities are required.

METRICS AND TARGETS

We align our reporting against climate-related metrics to recognised standards, including the Greenhouse Gas (GHG) Protocol. In addition, we have company targets, which cover absolute energy and carbon reductions, renewable energy procurement and delivery of products with positive attributes. Further information on our non-financial KPIs can be found on page 34.

Performance is measured against the aforementioned targets and metrics, and, where appropriate, senior leadership team members have direct accountability against meeting Company targets.

Burberry has a science-based target to reduce absolute Scope 1 and 2 GHG emissions by 95% by 2022 and to reduce absolute Scope 3 GHG emissions by 30% by 2030, both from a 2016/17 base year.

  • Scope 1 and 2 target focuses on emissions from our direct operations (including electricity and gas consumption at our stores, offices, internal manufacturing and distribution sites).
  • Scope 3 target relates to indirect emissions in our extended supply chain (such as from the sourcing of raw materials and manufacturing of finished goods).

To drive positive change through our products we have set 2022 targets to source 100% of our cotton more sustainably, and source 100% of leather from certified tanneries. In addition, we monitor the percentage of low-carbon products, which comprise recycled or bio-based content, as well as those which are manufactured in facilities proactively reducing their emissions impact.

When defining metrics and targets we consider them in two ways:

In the year ahead we will report on our progress towards our Scope 3 science-based target and model climate risks and opportunities against financial goals and loss tolerances.

STRATEGIC REPORT (extract 3)

RISK AND VIABILITY REPORT (extract)

CLIMATE CHANGE RISKS