Burberry Group plc – Annual report – 27 March 2021
Strategic Report (extract 1)
Environmental, Social and Governance (extract)
Contributing to the Sustainable Development Goals (SDGs)
Burberry’s commitment to sustainability is longstanding, grounded in the belief that for our future growth we need to actively address the challenges facing the fashion and luxury industry and the world in which we operate. We are dedicated to reducing our environmental footprint and enabling social progress. Recognising the power of working collaboratively to drive real change, we often work with our peers, sector experts and non-governmental organisations (NGOs) to achieve our ambitions.
Our ESG activity is aligned to the Paris Climate Agreement and informed by the United Nations SDGs.
Below are some of the ways we contribute towards these goals:
Strategic Report (extract 2)
Creativity is the thread that connects Burberry’s past with its future. Guided by our purpose, we are creating the next generation of sustainable luxury for our customers and helping transform our industry.
We recognise that the long-term success of our business depends on investing in the environmental sustainability of our operations, the resilience of our supply chains and our management of climate change impacts. Our future depends on it.
We are actively working to reduce our environmental footprint and meaningfully support our global communities, while seeking to transform our industry. Drawing on our heritage of exploration and guided by our purpose, we are pushing boundaries, setting leading standards and pioneering innovative solutions to create real system change.
Our Responsibility team of more than 30 in-house sustainability experts has been working on our environmental and social programmes for more than 15 years. The ambitious targets that underpin our mission are set out in our latest five-year Responsibility agenda through 2022.
We are on track to achieve 100% renewable electricity, a carbon neutral footprint across our own operational energy use, and for every luxury product we offer our customers to have more than one positive environmental or social attribute.
Expanding on our existing goals, we are transitioning towards a Net-Zero future and ensuring that we consciously craft our collections.
Collaborating to achieve a more sustainable future
We recognised the power of working collaboratively to drive real change. We work with our peers, NGOs and governments to unlock sustainable solutions that can help activate and scale change in our industry.
Our Responsibility agenda contributes to a range of the United Nations SDGs. Our contribution towards these goals is outlined on pages 62 to 65.
In September 2020, we were the first among our luxury peers to issue a Sustainability Bond, enlisting the support of investors to finance ambitious sustainability projects. More detail on this can be found on pages 92 to 93.
Our Responsibility agenda is front of mind for senior leaders across our teams, ensuring that we are making decisions with consideration for their departments’ environmental and social impacts. Progress is reviewed by the Sustainability Steering Committee at least three times per year, chaired by our CEO.
Progress is shared regularly with the Ethics Committee, Risk Committee and the Board, and reviewed by our external advisory forums, comprising independent external experts.
The implementation of our strategy is overseen by our Responsibility team of more than 30 in-house sustainability experts.
Our people play an important role in delivering our Responsibility strategy, from driving energy efficiency and reductions across our operations to working closely with our supply chain partners to minimise our impact when we source raw materials and create our products.
A Net-Zero future
We are proud of our climate change initiatives, which are continually evolving as we find new ways to address the challenges posed by the climate emergency.
We aim to be Net‑Zero by 2040 and achieve carbon neutrality in our own operational energy use by 2022. We are on track to achieve this by reducing absolute emissions, improving energy efficiency and switching to renewable electricity sources, before offsetting any remaining emissions. All our events, including shows and presentations, have been certified carbon neutral since 2019. We have reduced our market-based emissions by 92% since 2016.
Underpinning our ambition to achieve a Net-Zero future, we have Science Based Targets across our scope 1 and 2 emissions (in our own operations and indirect emissions from our energy use), aligned to the Paris Agreement 1.5°C pathway and scope 3 emissions (across our extended supply chain). We aim to:
- Reduce our absolute scope 1 and 2 GHG emissions by 95% by 2022
This target focuses on emissions from our direct operations, including electricity and gas consumption in our stores, offices, internal manufacturing and distribution sites. This target is consistent with reductions required to keep global warming to 1.5°C, the most ambitious goal of the Paris Agreement.
- Reduce our absolute scope 3 GHG emissions by 30% by 2030
This target relates to indirect emissions in our extended supply chain, which includes impacts from the sourcing of raw materials and the manufacturing of finished goods.
Both targets are set against a 2016 base year.
To date, in line with our Science Based Targets, we have reduced our scope 1 and 2 emissions by 84% compared to FY 2016/17 and reduced our scope 3 emissions from purchased goods and services by nearly 8,700 tonnes.
Rather than only purchasing offsets to cancel out our impact, we also invest in insetting projects, reducing our emissions and storing carbon at source in our own supply chain.
Through The Burberry Regeneration Fund, we support a portfolio of carbon insetting and verified carbon offsetting projects, which enable us to store carbon, promote biodiversity, facilitate the restoration of ecosystems and support the livelihoods of local producers.
For our inaugural pilot project, we have partnered with PUR Projet to design and implement regenerative agricultural practices with wool producers in our supply chain in Australia. The project will work at farm level to improve carbon capture in soils, improve watershed and soil health, and promote biodiverse habitats.
We are passionate advocates of renewable energy use and currently source 93%^ of our electricity from renewable sources. We are on track to achieve our target of using 100% renewable electricity in our own operations by 2022.
We are an active member of RE100 and have been recognised in the 2020 CDP A List and Supplier Engagement Leaderboard for our success in stimulating demand for renewable energy throughout our global supply chain. We continued to promote the use of renewables in our supply chain by creating a bespoke renewable energy guide for our Italian suppliers.
Ensuring our supply chain partners share our ambition for a Net-Zero future is crucial to achieving meaningful change at scale. In January 2021, we launched a programme in partnership with the Apparel Impact Institute (Aii) to establish a platform for Italian manufacturers to coordinate, fund and scale environmental programmes with measurable impact. Working alongside two fellow luxury brand partners, the initiative demonstrates a shared ambition to pursue a collective mission to make fashion’s supply chains more sustainable.
We support UN Climate Change’s efforts in the fashion industry. On the Manufacturing and Energy Working Group, we contributed to the development of online climate action training for the fashion industry’s supply chain.
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 98% of our net selling space square footage. 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. Market-based emissions for the UK relating to electricity purchased and used for operations (Scope 2) is stated as 0 due to 100% of UK electricity being procured from renewable sources. Combustion of fuel use from owned or leased transport is reported from FY 2018/19 onwards. Burberry has updated GHG data for FY 2019/20 and FY 2018/19 to account for updated emission factors and improvements in data availability and estimation methods. GHG emissions data reported is based on the period 1 April 2020 to 31 March 2021. For the avoidance of doubt, the company’s financial accounting period is from 31 March 2020 to 27 March 2021. However, references to FY 2020/21 for the selected KPIs included in the Responsibility section of Burberry’s Annual Report 2020/21 refer to the period 1 April 2020 to 31 March 2021.
Principle measures taken for increasing operational energy efficiency
At Burberry, to achieve our climate-related goals we focus on energy efficiency first and foremost. To manage our operational energy efficiency we set annual energy reductions targets to drive behaviour change. 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, before finally offsetting any remaining emissions.
Further information about Burberry’s basis of reporting is available on Burberryplc.com.
^^ Please see page 65 for details on external assurance.
1. Thoughtful design
By designing with our sustainability ambitions in mind, we can ensure that our products are consciously crafted, minimising our environmental impact and creating opportunities for our global communities.
We are engaging our creative community through training on circular design and have hosted a range of product disassembly workshops to help teams better understand how the lives of our products can be extended.
As a core partner of the Ellen MacArthur Foundation’s Make Fashion Circular initiative, we helped shape the vision for circular fashion and have contributed to its Circular Design Guide for Fashion, a valuable resource for the fashion and textiles industry.
2. Sustainable materials
Our collections feature high-quality and sustainably sourced materials. Through our use of these materials and engagement with suppliers, we also stimulate wider demand across our industry for materials that are less impactful on the environment.
We have a series of ambitious targets to achieve this aim:
- Ensure all key materials are 100% traceable by 2025, supported by our use of certified materials where the country of origin is verified and disclosed. We will achieve traceability to a minimum of country level for key raw materials
- Source 100% certified recycled nylon* and recycled polyester* by 2025, where nylon or polyester is the product’s main material
- Source 100% certified wool* by 2025, supporting certifications that uphold the highest animal welfare standards
- Source 100% certified organic cotton by 2025, which holds environmental and social benefits and is traced through our supply chain via a chain of custody. This builds on our target to source 100% of our cotton more sustainably by 2022
- Source 100% of our leather* from certified tanneries by 2022, with environmental, traceability and social compliance certificates
Spotlight on sustainable materials
- Cotton: We source 78% of our cotton* more sustainably by using a portfolio approach and are exploring new sources, including organic and regenerative cotton. This year, we formalised our ambition around organic cotton, with a target to source 100% certified organic cotton by 2025. Certified organic cotton is traced through the supply chain and has many environmental and social benefits, promoting soil health, supporting biodiversity and safeguarding farmers
- Cashmere: As part of our longstanding partnership with the SFA, in FY 2020/21 we participated in a pilot project with our cashmere scarf supplier, Johnstons of Elgin, which will result in fully traceable and SFAcertified cashmere fibre being used in our products
- Leather: We source 80% of our leather* from tanneries with environmental, traceability and social compliance certifications, with a target to extend this across 100% of our leather by 2022. In line with our support for the TCFD, we have assessed our leather supply chain and modelled the impact that climate change risks could have on our operations and supply chain across various temperature increase scenarios. For more information, please see our TCFD disclosures on pages 133 to 137
- Viscose: We collaborate with Canopy, an NGO working to protect the world’s forests, species and climate by collaborating with business leaders, scientists and decision-makers. We use Canopy’s Hot Button Report, a fibre sourcing analysis tool, and are working directly with suppliers and producers to ensure we only source viscose from responsible sources
* Denotes where the material referenced is referring to the product’s main material.
3. Caring for our supply chain
We are open, caring and committed to respecting and safeguarding the rights of everyone in our supply chain. In order to ensure we are having a positive impact on the people touched by our global business, we work closely with our supply chain partners to promote ways of working that reflect our values.
We continually assess human rights risks and labour conditions across our supply chain as part of our ethical trading programme, which has been in place since 2004. We require all our suppliers to meet international labour standards and local laws and agree to our Responsible Business Principles. Measures including announced and unannounced audits, training and improvement programmes, and interviews with people working in our supply chain, to help us to ensure our third-party suppliers are aligned to our expectations.
We believe that everyone should have access to fair and responsible employment. To support this, we are an accredited UK Living Wage employer, a Principal Partner of the Living Wage Foundation and are on the steering group of the Global Living Wage Initiative, which aims to provide a global living wage standard.
We make clear to all our suppliers that any form of modern slavery, including forced, bonded or involuntary prison labour, is not permitted. We provide training on identifying risks of modern slavery to our employees and partners to support this. More information can be found in our Modern Slavery Statement on Burberryplc.com.
During the financial year, we supported our supply chain partners through the challenges presented by the COVID-19 pandemic. We implemented an Infection Control Management Policy to support our partners in providing safe working environments. We also conducted training with the support of external providers on how to operate a COVID-19-safe environment.
4. Changing our industry’s use of water and chemicals
We are mindful of how we use water throughout our supply chain. We track and promote management practices and technologies that facilitate water recycling and use water-efficient materials. CDP rated Burberry A- for water security in 2020.
We prohibit the use and release of unwanted chemicals. As a Board member of The ZDHC Foundation, we guide luxury peers, third party suppliers and external chemical experts to devise innovative solutions to ensure effective chemical management across the fashion and textiles industry.
As a Board member of The ZDHC Foundation, we steer luxury peers, third-party suppliers and external chemical experts to devise innovative solutions to address this issue.
5. Minimising waste
We seek to minimise waste at all stages of our value chain. We follow clearly defined waste hierarchy principles. Where we have unsaleable goods, we reuse, repurpose, donate or recycle them.
In FY 2020/21, we launched reusable, customisable accessories pop-ups. Modular installations with interchangeable parts, the pop-ups build on Burberry’s legacy of innovation and creativity. In each location, the reusable building blocks were assembled in a unique way to create a beautiful set-up that adapted to fit each space. The travelling pop-ups made their way across 39 different locations.
We launched ReBurberry Fabric, a pilot programme in partnership with The British Fashion Council, to donate leftover fabrics to fashion students. During the year, we donated 7,125 metres of fabric, benefiting 33 schools.
We also partner with Alta Scuola di Pelletteria Italiana, a leather school, and San Patrignano, an organisation supporting marginalised young people. In 2020, the school trained San Patrignano residents in leather goods disassembly and repurposing using excess Burberry materials.
We continue to donate products and raw materials to various charities, design schools and colleges globally, including the Royal College of Art, the Manchester Fashion Institute and the British Fashion Council. We have also funded a two-year research project with The Hong Kong Research Institute of Textiles and Apparel (HKRITA) to design a post-consumer leather goods recycling system.
6. Sustainable packaging
All Burberry retail bags and boxes are reusable and recyclable, and certified by the FSC.
Our signature oak paper is made from a minimum of 40% upcycled coffee cups that would have otherwise gone to landfill. Since February 2019, 66 million cups have been upcycled into Burberry packaging. Our products are transported on recyclable hangers and in garment bags made from 100% recycled polyester.
Eliminating unnecessary single-use plastic packaging is a priority for us. As a signatory of the 2025 New Plastics Economy Global Commitment, we have pledged to eliminate unnecessary and problematic plastic; use 100% reusable and recyclable plastic; and use at least 20% recycled content across all own-branded plastic packaging by 2025.
7. Restore and repair
We know that the enduring quality of Burberry pieces means their appeal and value is long-lasting. This, along with our mission to build a more sustainable future, led us to launch a luxury aftercare service to extend the life of our products.
For the first time, we have also launched dedicated aftercare spaces in stores in London and Paris. Building on our existing repair service, we piloted a new Trench Refresh programme in London, inviting clients to a Trench diagnostic session with one of our in-house experts. As part of this offering, we introduced a new reproofing solution for our gabardine Trench Coats that is kinder to the environment, and expanded our repair and replacement capabilities. We also launched a pilot of our Leather Restore service globally, offering complimentary leather conditioning to extend the life of Burberry bags.
SUSTAINABILITY BOND USE OF PROCEEDS REPORT
Burberry is committed to using its position and influence to drive social and environmental improvements and foster sustainable 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 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 first 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 2022 Responsibility targets are owned by senior leadership across all regions and key functions and progress is reviewed by the Sustainability Steering Committee.
The Sustainability Steering Committee was established in 2019 to review and oversee the Group’s strategy on environmental and social issues related to our supply chain. The Sustainability Steering Committee convenes at least three times a year and is chaired by the CEO, who is accountable for ensuring oversight of climate-related risks and opportunities of the Group. The CO&FO, the Chief Supply Chain Officer and the Vice President of Corporate Responsibility are permanent members of the Sustainability Steering Committee.
In addition to the Sustainability Steering Committee, sustainability matters are regularly discussed at the Ethics and Risk committees and updates are shared with the Board.
Burberry’s Sustainability Bond Committee (the “Committee”) includes representatives from Corporate Responsibility, Group Treasury, and other parties nominated as subject matter experts. The Committee has considered the Eligibility Criteria in the Framework and reviewed the spend on projects eligible for financing under the Sustainability Bond and has 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 have been completed within the three-year period preceding the issuance of the Sustainability Bond in September 2020.
The allocation across categories is summarised below:
The unallocated proceeds under the bond are £193.6 million. The cash is kept on deposit in line with Burberry’s Treasury Policy.
Projects include the financing or refinancing of properties which have achieved one of the following certifications:
- Leadership in Energy and Environmental Design (LEED): Platinum or Gold level
- Building Research Establishment Environmental Assessment Method (BREEAM): Excellent or Outstanding level
For existing buildings, certification has been received within the last three years.
Environmentally sustainable management of living natural resources and land use
As part of Burberry’s Responsibility strategy, where cotton is the product’s main material, Burberry has set a goal to procure 100% of its cotton more sustainably by 2022 by using a portfolio approach.
Burberry continues to promote more sustainable farming practices among its suppliers and also remains committed to driving demand for organic cotton.
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. This commitment applies to all Burberry customer‑facing and transit packaging.
As signatories of the 2025 Global Plastics Commitment, we will minimise and phase out the use of unnecessary single-use plastics by redesigning packaging, using recyclable alternative materials and/or enabling reuse schemes. Where plastic packaging is used, it must be made from recyclable plastic with a minimum of 20% recycled content.
We have allocated proceeds against packaging procurement where recycled content is more than 20%.
External assurance of corporate responsibility disclosures
Burberry has appointed PricewaterhouseCoopers LLP (PwC) to provide limited assurance over the allocation of use of proceeds. Information forming part of the assurance scope is denoted with a ^. The assurance statement is available on Burberryplc.com.
Strategic Report (extract 3)
Risk and Viability Report (extract)
The success of our business over the long term will depend on the social and environmental sustainability of our operations, the resilience of our supply chain and our ability to manage any potential climate change impacts on our business model and performance.
As the global climate crisis becomes more critical, we recognise the importance of addressing long-term sustainability challenges and potential impacts of climate change on our business in reputational, operational and financial terms. Failure to implement appropriate cross-functional action plans and strategies, incorporating the recommendations of the TCFD and Science Based Target initiative (SBTi), could hinder efforts to mitigate long-term risks and future-proof our business.
Risk movement and outlook
The risk of climate change continues to be an increasing area of scrutiny globally and will continue to increase incrementally year on year without significant science-based global mitigation efforts, from government, business and their value chains and collaboration from wider industry and civil society. The Group’s ability to mitigate this risk has remained flat.
Link to strategy
Our commitment to being an industry leader in responsible and sustainable luxury underpins our vision to establish ourselves firmly in luxury fashion and deliver sustainable, long-term value. Our commitment to be Net-Zero by 2040 and our science-based targets across scopes 1, 2 and 3 emissions form part of our response to climate change and our strategy to future-proof our business.
We have a low tolerance for risk when it comes to protecting the human and environmental resources on which we all depend. However, given the long-term nature of some sustainability risks and the level of uncertainty associated with their occurrence and impact, we accept that some risks are inevitable. We therefore focus on helping to minimise global risks while building resilience in our operations and supply chain.
Examples of risks
- Increased severity of extreme weather events, from floods to droughts, could cause disruption in our supply chain, impact our business model and affect the sourcing of raw materials, as well as the production and distribution of finished goods
- Our industry is sustained by many agricultural and manufacturing communities around the world. Longer-term shifts in climate patterns and loss of biodiversity caused by changes in precipitation patterns, rising mean temperatures and rising sea levels could cause social, economic and operational challenges
- Failure to address and mitigate these risks could result in resource availability limitations (for example, cotton, leather and cashmere) and disruptions to key business and supply chain operations
Actions taken by management
- Building on our work in FY 2018/19 and FY 2019/20, during FY 2020/21 we developed a quantitative scenario-based analysis of climate-related risks that could impact the value chains of Burberry’s key commodities. For more information see pages 133 to 137
- To understand the key climate-related risks to Burberry, the cross-functional TCFD working group undertook a risk assessment across Burberry’s business to identify the key risks and vulnerabilities for our key commodities, both in terms of physical and transitional risks. Multi-hazard risk maps were used to evaluate which hazards (such as drought, heat stress and flooding) and vulnerabilities (including property damage and decreased productivity) had the most material impacts
- In the short term, we are conducting specific analysis of the acute risk of our locations and operations
- We developed a quantitative scenario-based analysis of material climate-related risks for the supply chains of Burberry’s key commodities. The scenario analysis was based on 2°C and 4°C scenarios, which reflect a “best” and “extreme worst” case, and for which there is sufficient quantity and quality of data available
- In our own operations and supply chain we continue to use the WWF water risk assessment tool and the Aqueduct Water Risk Atlas to identify current risks, anticipate potential future strains on water resources and understand emerging long-term risks
- We use our Net-Zero target and science-based targets to focus our efforts in order to address our GHG emissions along our entire value chain (see page 86)
- We support a number of industry initiatives that address climate change impacts, including the British Retail Consortium’s Net Zero commitment, RE100, Ellen MacArthur Foundation’s Make Fashion Circular Initiative, New Plastics Economy Global Commitment, UN Fashion Industry Charter for Climate Change, The Fashion Pact, Accounting for Sustainability and SFA
- We invest in programmes that help to sustain our industry and supplier communities, specifically initiatives that support social economic development in remote communities and promote more sustainable herding practices in the cashmere industry, working with SFA, PUR Projet and Oxfam. In addition, we also support programmes that build employability skills in the circular economy, with partners including Elvis & Kresse and Progetto Quid
- We have a Regeneration Fund to support nature-based compensation and insetting projects in the supply chain that will reduce the carbon impact of key raw materials our industry depends on, and improve biodiversity and local producer livelihoods
- We continuously engage and educate employees around the topic of climate change through focused events, strategic communications, volunteering opportunities and through our network of Responsibility Champions
Policy and legal
- Increased regulation and more stringent environmental standards could impact our business by affecting operational and production costs and flexibility of operations
- Resource scarcity, coupled with increasing demand and changes in customer behaviour, could affect the production, availability, quality and cost of raw materials
- Substitution and transition costs associated with implementing new low impact technologies
- Failure to meet consumer demand for sustainable products and services could threaten our relationship with customers, employees, regulators and interest groups, which could impact Group revenues
Actions taken by management
- As part of the quantitative scenario-based analysis of climate-related risks conducted in FY 2020/21, we modelled the impact of transitional risks such as the introduction of mandatory, globally applied carbon taxes
- Through our memberships with various industry bodies, associations and external assurance partners, we contribute to consultations and keep informed of upcoming environmental legislative changes
- Environmental sustainability matters are reported to the Sustainability Steering Committee, the Ethics Committee, the Risk Committee and the Board
- Our longstanding responsibility programmes, coupled with our Responsibility goals, are driving continuous improvements in moving beyond social and environmental compliance
- We identify and explore scarce resources while also developing alternative materials through research and development. For example, in FY 2020/21 we worked in partnership with HKRITA to develop a system to recycle post-consumer leather goods
- Our target is for 100% of our products to have more than one positive attribute by 2022
- We continue to increase our sustainable product mix, by including recycled content, bio-based materials and more sustainable cotton in our collections. During FY 2020/21 we established new raw material sourcing and traceability targets. Full details can be found in the ESG section on pages 60 to 91
- In FY 2020/21 we expanded our product sustainability messaging to make customers aware of improved sustainability credentials, through the ReBurberry Edit and BConscious label. This includes dedicated sustainability labelling across all key product categories. The labels provide customers with an insight into the industry-leading environment and social credentials of the Burberry programme. The pistachio-coloured sustainability labels indicate how a product meets a range of externally assured stringent criteria. Defined as “positive attributes”, these include the amount of organic content or recycled natural fibres used in materials
- As part of the scenario analysis, we assessed long-term technological trends that could significantly impact our business model
- Our IT Innovation team is exploring new systems and ways in which sustainability priorities can be supported by advancements in technology
- We continue to increase our focus on a zero-waste mindset across the business and have a clearly defined waste hierarchy. We have established a waste baseline and are setting targets and KPIs that will cover operational, manufacturing and finished goods waste as well as packaging. Since FY 2018/19 we have publicly committed to not destroy unsaleable finished products
- Our climate goals are approved by the SBTi. We also advanced our climate change commitments during the year by committing to be Net-Zero by 2040
- In line with the increased expectations of our stakeholders, we are providing greater transparency in our corporate reporting, as well as participating in a number of ESG investor indices, including the 2020 Dow Jones Sustainability Index and the CDP A List, and achieved Gold Class Distinction in S&P Global’s Sustainability Yearbook in 2021
TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES
The climate crisis is accelerating, and Burberry’s objective is to help reduce global warming levels to those defined by the Paris Agreement of 2°C or less, by mid-century.
We believe this means achieving a Net-Zero emissions world by 2040, a decade ahead of the Paris Agreement. To achieve the goals of the Paris Agreement, we recognise the importance of disclosing climate-related risks and opportunities in line with the recommendations of the TCFD.
The success of our business over the long term will depend on the social and environmental sustainability of our operations, the resilience of our supply chain and our ability to manage the impact of any potential climate change on our business model and performance.
Our longstanding commitment to sustainability is evidenced by our issuance of a Sustainability Bond, the proceeds of which will be used to finance eligible sustainable projects, as well as our inclusion in the CDP 2020 A List, a group of companies leading the way to a more sustainable future.
In implementing the recommendations set by the TCFD, we have provided a summary of the actions we have taken to review the key risks and opportunities arising from climate change, and the potential impacts on our business.
The Board takes overall accountability for the management of all risks and opportunities, including climate change. Our CEO is responsible for oversight of our climate change agenda. The Board receives updates on sustainability-related matters at least once a year, including those related to climate change.
The Group’s strategy on environmental and climate-related impacts is governed by the Sustainability Steering Committee, which convenes three times per year to review progress, and is chaired by the CEO, who is also on the steering committee of the Fashion Pact. The Sustainability Steering Committee is attended by the CO&FO, who is also the Co-Chair of the Prince’s Trust CFO Leadership Network for the Accounting for Sustainability initiative, the Chief Supply Chain Officer, the Chief People Officer, the Head of Ready to Wear, Senior Vice President Strategy, Vice President Corporate Responsibility and Vice President Corporate Relations.
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. The TCFD working group reports to the Risk Committee, which is chaired by the CO&FO. In addition, our Enterprise Risk Management process 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 is assessed by the Risk Committee, and is subject to independent and objective review by Internal Audit as part of the annual audit plan. The Audit Committee reviewed the work performed by the TCFD working group, including progress against the four TCFD pillars and proposed disclosure.
The remuneration of the Executive Directors is partly linked to our progress in building a more sustainable future. More details of this are set out in the Directors’ Remuneration Report on pages 180 to 203.
Strategy and risk management
Climate change has been identified as a principal risk to Burberry, which has the potential to impact our business in the short, medium and long term. The physical risks and opportunities that we face from climate change include water scarcity and raw material availability. The transitional risks and opportunities include changing consumer preferences and future policy and regulation.
The process for assessing and identifying climate-related risks is the same for all principal risks and is described on pages 106 to 107.
For each principal risk we have a risk management framework detailing the controls we have in place and those responsible for managing both the overall risk and the relevant mitigating controls. We monitor risks throughout the year to identify changes in the risk profile. Management of climate-related risks is distributed throughout the organisation depending on where the risk resides. For example, climate risks in relation to raw materials in the supply chain are managed by our procurement team responsible for buying commodities.
In September 2020, Burberry issued a £300 million, five-year Sustainability Bond. This was the first sustainability labelled bond issued by a luxury company and diversifies Burberry’s sources of funding, introducing long-term financing into the Company’s capital structure. The proceeds will be used to finance and/or refinance eligible sustainable projects as described by Burberry’s Sustainability Bond Framework, inextricably linking Burberry’s medium-term financing to sustainable projects and driving our climate change agenda.
We have implemented a number of initiatives to help inform our longer-term strategy. These are discussed further in the ESG section (pages 60 to 91). We have also initiated conversations with key raw material commodity partners to gain deeper insights into the most material climate change risks for each commodity in order to understand how we can mitigate these risks and build innovative solutions.
During FY 2020/21, we developed a quantitative scenario-based analysis of climate-related risks that could impact the value chains of Burberry’s key commodities: leather, cotton and cashmere.
The cross-functional TCFD working group used our climate change scenario analysis performed in FY 2019/20 and FY 2018/19 to model the risks of climate change focused on our key commodities. This included aligning our qualitative climate scenarios with industry reference scenarios using Representative Concentration Pathways (RCPs), which are used by climate scenario scientists to model the potential physical changes in the climate between now and 2100. Complementing the RCPs, we also used Shared Socioeconomic Pathways (SSPs) data, which is employed to model the potential socioeconomic changes needed to tackle climate change between now and 2100.
To understand the key climate-related risks to Burberry, the cross-functional TCFD working group undertook a risk assessment across Burberry’s business to identify the key risks and vulnerabilities for our key commodities, both in terms of physical and transitional risks. Multi-hazard risk maps were used to evaluate which hazards (such as drought, heat stress and flooding) and vulnerabilities (including property damage and decreased productivity) had the most material impacts.
Risks and impacts aligned with TCFD recommendations
Based on our scenario analysis, we developed a quantitative analysis of the impact from climate-related risks on Burberry’s supply chain for the key commodities. The analysis included an assessment of the impact of the most material physical and transitional risks in two distinct scenarios: 2°C and 4°C pathways to the year 2050.
The 2°C and 4°C scenarios are constructed on the basis that average global temperatures will have increased by 2°C and 4°C by the year 2100. As informed by our Net-Zero targets, Burberry believes the world should seek to limit global temperatures to 1.5°C above pre-industrial levels.
However, we have modelled scenarios based on 2°C and 4°C scenarios, which reflect a “best” and “extreme worst” case, for which there is sufficient quantity and quality of data available. We have chosen to model our scenarios to 2050 as this represents a medium-term period, in which we are broadly able to influence current or upcoming decisions around strategies, capital allocations, costs, and revenues.
Our analysis on the key commodities illustrates that, without action, both scenarios present financial risks to Burberry. These financial risks predominantly result from increased cost of raw materials, decreased productivity, and the potential impact of carbon taxes in the 2°C scenario. However, we have also identified that the financial impact of physical hazards causing damage to property and assets is limited over this time period.
With respect to transitional risks, our climate targets are one of the ways we mitigate the risk of future policy and regulation, including carbon taxes. In FY 2020/21, 93%^ of our electricity consumption was powered by renewable sources. We are on track to meet our 2022 target to have 100% of renewable electricity sourced in our direct operations.
We will update our scenario modelling as more climate data becomes available. In addition, we will assess the risks and opportunities presented by potential shifts in consumer preferences.
The results of our scenario analysis will be used to ensure the necessary mitigating controls are in place, support Burberry’s risk management activities and inform future business strategies.
Our approach and commitment to sustainability has been recognised by inclusion in the Dow Jones Sustainability Index for the sixth consecutive year, achieving our highest ever score in 2020. In addition, Burberry received Gold Class Distinction in the S&P Global Sustainability Yearbook in 2021.
Metrics and targets
We have been measuring and reporting our energy consumption and carbon emissions since FY 2012/13 and water consumption since FY 2016/17, which are assured by PwC.
We align our reporting against climate-related metrics to recognised standards, including the 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 (covering social and environmental metrics).
Further information on our non-financial KPIs can be found on page 45. Performance is measured against the aforementioned targets and metrics, and, where appropriate, senior leadership team members have direct accountability against meeting Company targets.
Two of our GHG reduction targets are recognised as science-based: 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 FY 2016/17 base year.
- Scope 1 and 2 target focuses on GHG 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 GHG emissions in our extended supply chain (such as from the sourcing of raw materials and manufacturing of finished goods)
This year we also increased our commitments to sustainable raw materials and have set 2025 targets to source 100% organic cotton, 100% certified leather and 100% recycled nylon and polyester.
Our Sustainability Bond (see pages 92 to 93) requires annual reporting on how proceeds have been allocated to eligible sustainable projects, any unallocated proceeds, and an impact review. 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:
To date, in line with our Science Based Targets, we have reduced our scope 1 and 2 emissions by 84% compared to FY 2016/17 and reduced our scope 3 emissions from purchased goods and services by nearly 8,700 tonnes.
We have revised our ambitions beyond 2022 to meet a Net-Zero 2040 goal, which will include a transition road map for reducing GHG emissions. We recognise that meeting our climate-related targets is dependent on collective action and focus. Foremost are countries implementing their Paris 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 and the Prince’s Trust Accounting for Sustainability project.
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 86. Each year PwC provides limited assurance over environmental metrics, including carbon emissions data.