Burberry Group plc – Annual report – 1 April 2023
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 TCFD recommendations and recommended disclosures.
Burberry has a longstanding commitment to addressing the impacts of climate change and is a luxury industry leader in taking steps to advance our decarbonisation agenda. Since 2016, we have reduced our market-based scope 1 and 2 emissions by 93%, becoming carbon neutral across our own operations by compensating for residual emissions through the use of verified carbon credits and maintaining our commitment to use 100% of our electricity from renewable sources.
Building on these accomplishments, in FY 2022/23 we published our latest Responsibility strategy, Burberry Beyond, to focus on four strategic priorities: Product, Planet, People and Communities. Our pledge to become Climate Positive by 2040 is ahead of the UK Government’s net-zero by 2050 target and aligns with the Planet pillar of our strategy. To achieve this, we are committed to continued emissions reduction across our extended supply chain and investing in nature-based projects with carbon benefits that restore and protect natural ecosystems, enhancing the livelihoods of global communities. See Planet on pages 56 to 67 for further details.
We have adopted the recommendations of the TCFD and reported on its four thematic areas: Governance, Strategy, Risk Management, and Metrics and Targets, since FY 2019/20. 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 Climate Positive by 2040 ambition.
As scientific understanding of climate change and the global transition towards a lower-carbon economy evolves, we will continue to develop our assessment of climate-related risks and mitigation strategies and evolve our TCFD disclosures to reflect such changes, ensuring they follow latest guidance and leading practice.
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 2022/23 TCFD disclosures. The TCFD Basis of Reporting and assurance statement is available on Burberryplc.com.
Governance
The Board is responsible for ensuring its 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 that it is able to make informed decisions. Our governance framework is outlined in the Corporate Governance Statement on page 153 and more detail on the roles of the Board and its committees is set out in the Matters Reserved for the Board and its Committees’ terms of reference, which are available in the Corporate Governance section of Burberryplc.com.
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 process is included in the Risk and Viability Report on page 118.
The Group’s strategy on environmental and climate-related issues is governed by the Sustainability Committee, which convened four times in FY 2022/23 and is chaired by the CEO. The Committee plays an important decision-making role to support Burberry’s Responsibility strategy, with membership including senior leaders from across the organisation who are responsible for the execution of the responsibility strategy within their respective business areas. Topics discussed in the Sustainability Committee in FY 2022/23 include plastic packaging, circular business models and a scope 3 GHG emissions update. The Company Secretary or their designate is secretary to the Committee.
During FY 2022/23, the Board received two updates from the Sustainability Committee, which included progress against the Group’s sustainability-related goals and targets. The Board also received an update on Burberry’s climate ambition including progress towards our industry-leading goal to become Climate Positive by 2040.
The cross-functional TCFD working group, which includes members from the Finance, Corporate Responsibility and Risk teams, defines the approach for identifying and assessing climate-related risks. In FY 2022/23, the TCFD working group provided an update on the outputs of the scenario analysis and proposed draft disclosure to the Risk Committee, which was chaired by the Chief Operating and Financial Officer (CO&FO).
The Audit Committee reviews the work performed by the TCFD working group, including progress against the four TCFD pillars, outcomes of the scenario analysis and proposed disclosure. 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. We currently have five members of our Board who have extensive leadership experience on sustainability issues. Details on the sustainability skills and experience of these Board members is included in Board Leadership and Company Purpose on page 157.
We also worked with the Cambridge Institute for Sustainability Leadership (CISL) to build sustainability awareness and knowledge among our Board and senior leaders. In May 2022, CISL delivered a training session to our Board on global sustainability challenges, including climate change, biodiversity and the potential implications of these on our business. This followed a similar session presented to the Executive Committee in March 2022.
Similarly, we are committed to having a suitable pool of internal sustainability experts with relevant knowledge and skills to support decision-making. Members of the TCFD working group 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 topics through frequent engagement, focused events, strategic communications and volunteering opportunities. See our Responsibility Approach on pages 87 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).
For FY 2023/24, 25% of the Executive Director’s bonus is once again linked to strategic measures including environmental and social measures and there will also be a sustainability underpin in the 2023 BSP award.
Building on this, in FY 2023/24 we are introducing specific sustainability metrics linked to our ambition to become Climate Positive by 2040 to the annual corporate bonus plan for the wider workforce. We believe that cascading sustainability targets represents an invaluable opportunity to drive the cultural evolution necessary to achieve our long-term goals.
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 Climate Positive 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 with each having defined actions to drive progress: Raw Materials, Circularity and 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.
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 Group to consider how the future might look if certain trends continue, or certain conditions are met, and to assess the Group’s strategic resilience.
As the scientific understanding of climate change and availability of data evolves, we expect greater rigour and sophistication in approaches to scenario analysis. We will continue to develop and update 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.
Our approach to scenario analysis
Our scenario analysis incorporates the Group’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 updated strategy, with the Group’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 Group.
Our scenario analysis considers the impacts of both physical and transitional risks.
In addition, we have considered the risk that a market shock caused by transition to a low-carbon economy would impact the Group’s cost of debt, and how low-carbon innovations would devalue the Group’s technology. We have concluded that these risks are not significant at this time due to the Group’s strong net cash position, focus on renewable energy consumption and absence of carbon intensive machinery. We will continue to monitor and report on these risks.
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 below, alongside a summary of the potential global impact of physical and transition risks under these scenarios.
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 ongoing 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. Beyond five years, there is less certainty around the impact of climate-related risks as this is dependent on the pace and effectiveness of the global transition to a lower-carbon economy.
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 over this period.
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 Climate Positive by 2040, have not been taken into consideration in the scenario analysis.
Scenario analysis results
In FY 2022/23, we further developed our scenario analysis to best reflect our current understanding of how climate change could impact the Group. This includes incorporating the latest scientific data on the global impact of climate change, increased sophistication when modelling transition risks and updating the digital twin representation of our business.
The tables below show the results of our scenario analysis and our strategic response. The financial impact represents the estimated loss of value to the Group’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 Group’s financial statements.
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 in to annual budgets, and detailed in Our Strategic Response on pages 100 to 104. We have also considered the impact of climate change in the preparation of our Financial Statements, which can be found on page 270.
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 partnerships focused 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.
Overall, the results of our scenario analysis indicate that the physical and transition risks associated with climate change could impact the Group 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. We will continue to consider and identify how the results of our scenario analysis may be utilised to inform future strategic planning where appropriate.
Opportunities
In addition to these climate-related risks, there are also opportunities for risk mitigation and growth, which may arise for the Group as it transitions toward a lower-carbon economy.
The Group’s approach to identifying climate-related opportunities is integrated within its wider strategy to deliver positive change with sustainability at its core. Supported by the Group’s overarching Climate Positive by 2040 ambition, the Sustainability Committee is key to the identification, prioritisation and realisation of climate-related opportunities.
Examples of such climate-related opportunities are summarised below.
We recognise the potential impact of climate change, which remains a principal risk for the Group. While there are challenges ahead, the Group 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 Climate Positive ambition will be key in ensuring the Group’s resilience to the potential impacts of climate change, supported by our wider Burberry Beyond strategy see Responsibility (pages 50 to 94) and underpinned by ambitious targets, which are detailed in Metrics and Targets (see pages 30 to 35).
Risk Management
Climate change has been identified as a principal risk to Burberry see page 95 and has the potential to impact our business in the short, medium and long term as detailed on page 99.
The overarching approach to identifying climate-related risks is the same as for all principal risks and is described on page 97. 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 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 of appetite. 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 work performed by the TCFD working group, including progress against the four TCFD pillars and 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 Group has also developed a risk platform, which enables us to track our business objectives, including those that 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 and align our strategy and actions accordingly.
Metrics and targets
We have a number of metrics and targets in place to monitor and manage the most significant risks and opportunities arising from climate change. These are outlined in the tables on pages 105 to 109 and are linked to the risks modelled as part of the scenario analysis and the opportunities identified by the Group.
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 in ensuring we both build a better world for the next 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 KPIs as part of our Responsibility strategy, as well as key metrics reported in our GHG table. KPIs subject to assurance by PwC are denoted with a ^ throughout this Annual Report.
Our GHG emissions reduction targets are approved as science based by the SBTi:
- To reduce absolute scope 1 and 2 GHG emissions by 95% by FY 2022/23 from a FY 2016/17 base year and maintain 95% emissions reduction
- We reduced absolute scope 1 and 2 GHG emissions by 93% from our FY 2016/17 base year. We have therefore not met our target this year, however, we will continue to identify the energy efficiency opportunities required to reach and maintain our 95% reduction target in FY 2023/24. We also continued to ensure 100% of our electricity was sourced from renewable sources
- To reduce absolute scope 3 GHG emissions by 46% by FY 2029/30 and by 90% by FY 2039/40 from a FY 2018/19 base year
- In FY 2022/23, we reduced our absolute scope 3 emissions by 11% from the previous year (FY 2021/22), and by 40% since our FY 2018/19 base year
- Independent limited assurance has been obtained by the Group over our FY 2022/23 reduction in scope 3 emissions from a FY 2018/19 base year, as we progress towards our Science-Based Target. The assurance report is available on Burberryplc.com
In addition, we have a number of internal targets to achieve our Climate Positive and Net-Zero Roadmap with accountability sitting with relevant Executive Committee members. Looking ahead, we are committed to reviewing and refining these internal targets as required.
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 60.
In recognition of the importance of the TCFD and Sustainability Accounting Standards Board (SASB) being key Environmental, Social and Governance 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 Group’s current position and set our Climate Positive by 2040 ambition (which can be found within Planet on page 58). We will continue to monitor the developments of the Transition Plan Taskforce to ensure we align with its requirements.
Reflecting the importance of CDP as a gold standard for environmental reporting with the richest and most comprehensive dataset on corporate action on climate, we have been reporting to CDP since 2010. In 2022, 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 the 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 in helping to shape the policy and regulation required and are working collaboratively with partners, suppliers and other organisations to achieve our ambition, including the United Nations Global Compact, the Fashion Pact, The UN Fashion Charter, RE100, Race to Zero and the Prince’s Trust Accounting for Sustainability initiative.
Page 56 onwards extracts
Risk and Viability Report (extract)
Strategic Report (page 92 extract)
Sustainability Bond – use of proceeds report
Burberry is committed to using its position and influence to drive social and environmental improvements and foster sustainability innovation in the value chain, from the sourcing of raw materials to the manufacturing of finished products and distribution through our stores and wholesalers. We are also committed to enlisting the support of investors in delivering these ambitions by linking Burberry’s Sustainability strategy to its funding requirements.
Burberry issued a debut five-year sterling Sustainability Bond on 21 September 2020 for £300 million at a coupon of 1.125% (the “Sustainability Bond”). As part of the Sustainability Bond Framework1 (the “Framework”), a commitment was made to publish a use of proceeds report within one year of the issuance of the Bond and annually thereafter.
This report constitutes Burberry’s third use of proceeds report to investors and covers the allocation of proceeds from the Sustainability Bond by category per the Eligibility Criteria as defined in the Framework.
Eligibility Criteria and oversight
The categories of our Eligibility Criteria are as follows:
- Green buildings
- Environmentally sustainable management of living natural resources and land use
- Pollution prevention and control (including waste prevention, waste reduction and waste recycling)
Burberry’s responsibility targets are owned by senior leadership across all regions and key functions and progress is reviewed by the Sustainability Committee.
The Sustainability Committee was established in 2019 to review and oversee the Group’s strategy on Environmental, Social and Governance issues related to our Sustainability agenda. The Sustainability Committee convened four times during FY 2022/23 and is chaired by the CEO, who is accountable for ensuring oversight of climate-related risks and opportunities for the Group.
In addition to the Sustainability Committee, sustainability matters are regularly discussed at the Ethics and Risk Committees and updates are shared with the Board and the Audit Committee.
The Sustainability Committee has considered the Eligibility Criteria in the Framework and reviewed the spend on projects eligible for financing under the Sustainability Bond and allocated the proceeds accordingly.
Allocation of proceeds
The proceeds of the Sustainability Bond have been allocated across the three categories outlined in the Framework. In accordance with the Framework, these eligible projects and spend were completed within the three-year period preceding and the financial years since the issuance of the Sustainability Bond in September 2020.
The allocation across categories is summarised below.
Unallocated proceeds
The unallocated proceeds under the bond are £45 million. The cash is kept on deposit in accordance with Burberry’s Treasury Policy.
Project examples
Green buildings:
Projects include the financing or refinancing of properties, which have one of the following certifications. For existing buildings, certification has been received within the last four years.
Certifications include:
a. LEED: Platinum or Gold level
b. BREEAM: Excellent or Outstanding level
Environmentally sustainable management of living natural resources and land use:
Burberry continues to promote more sustainable farming practices among its suppliers and also remains committed to driving demand for organic cotton. As part of this, 31%^ of total cotton was certified organic in FY 2022/23, however, organic cotton does not meet the Eligibility Criteria under the Framework document and therefore no proceeds have been allocated this year.
In addition, we support Cotton 2040, a cross-industry partnership convened by Forum for the Future to address long-term resilience in cotton supply chains.
Pollution prevention and control
Burberry is passionate about driving positive change and building a more sustainable future. Our sustainable packaging materials commitment aims to minimise the amount of packaging used and, where packaging is unavoidable, to maximise use of recycled, reusable and recyclable materials in line with circular economy principles.
All Burberry retail bags and gift boxes are now made with paper-based materials, which are widely recyclable and reusable. Our garment covers are currently made from 100% recycled polyester and our hangers contain a minimum of 60% recycled plastic.
We have allocated proceeds against packaging procurement where recycled content is more than 20%.
External assurance of the use of proceeds
Burberry has appointed PricewaterhouseCoopers LLP (PwC) to provide independent limited assurance over the allocation of use of proceeds. Information subject to assurance is denoted with a . PwC’s assurance report and Burberry’s Sustainability Bond Framework are available on Burberryplc.com.
Page 270 extract
1. Basis of preparation
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 1 April 2023 is not material.
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 and higher expenditure on raw materials and other as yet unidentified costs.
Accounts examples 