IFRS S2: Strategy

"We have identified six principal climate-related risks and four principal opportunities, grouped by transition and physical categories and mapped to our three-horizon planning cycle. Each is supported by a short description, the business units most exposed, and the time horizon over which we expect the effect to crystallise. Full detail follows in the tables accompanying this section."

"The transition risks identified in 9(a) are already reshaping procurement: steel inputs subject to the EU CBAM have added 4.2 per cent to landed cost on affected SKUs in 2024. We anticipate a further 12 to 18 per cent increase by 2028 under our central transition scenario, concentrated in three product families manufactured at our two European plants."

"Climate inputs are now incorporated into our annual strategy review and into every capital proposal above £25 million. Our transition plan, approved by the Board in June 2024, sets out how we intend to reach 2030 interim emissions targets through a combination of asset retirement, renewable power procurement, and low-carbon product redesign."

"Physical damage from the Q3 2024 flood at our Rotterdam facility reduced EBIT by £14m, recognised within cost of sales. Over our five-year plan we expect between £40m and £90m of additional operating costs from the two plants in hydrologically exposed catchments, and between £25m and £60m of revenue upside from low-carbon product lines. The ranges reflect the spread of outcomes across our two central transition scenarios."

"Under our high-warming physical scenario, two of our six production sites become operationally uneconomic before 2040 without material adaptation investment. Under our fast-transition scenario, our internal combustion product family loses roughly 35 per cent of addressable market by 2035. The transition plan and capital allocation framework described in 9(c) are designed to respond to both sets of conditions."

"Risk P2: Chronic water stress at our Gujarat and Andalucía sites. Driver: declining annual precipitation and rising competing demand from agriculture. Potential impact: production curtailment during summer months, forced withdrawals to tankered supply. Business units affected: Industrial Coatings and Specialty Chemicals."

"Of the six identified principal risks, four are physical (two acute, two chronic) and two are transition (policy and market). Risk T1, regulatory cost of carbon, is treated primarily as a transition risk but has a secondary physical element where carbon-price-driven demand shifts expose us to stranded assets."

"Risk T1 (regulatory cost of carbon) crystallises in the medium term, driven by the EU CBAM ramp to 2034. Risk P3 (acute heat stress at the Chennai site) is already present (short term) and intensifies in the long term. Opportunity O2 (low-carbon steel premium) emerges medium term and scales long term."

"We define short term as up to three years, medium term as three to ten years, and long term as ten to thirty years. These windows align with our annual operating plan (short), our five-year strategic review cycle extended for climate (medium), and our long-lived asset replacement horizon (long). The same definitions are applied in our principal-risk reporting."

"Our identification process drew on ten years of internal loss data, two independent physical-risk datasets (Jupiter Intelligence and an internal catchment model), policy horizon scans prepared by our regulatory affairs team, and three externally sourced transition scenarios. The process is described in more detail under Risk Management in this report."

"As an Electric Utilities & Power Generators issuer, we have reviewed the IFRS S2 industry-based topics. We consider all topics applicable except 'Nuclear Safety and Emergency Management', which is not relevant to our generation mix. Our material industry topics are disclosed alongside the cross-industry disclosures in the Metrics and Targets section."

"Climate-related transition pressure has shifted our procurement toward certified low-carbon raw materials, now representing 34 per cent of purchased volume in 2024 against 11 per cent in 2020. We anticipate this share rising to above 60 per cent by 2028 under our central transition scenario."

"Physical risk is concentrated at four sites accounting for 38 per cent of Group revenue: two in the Gulf of Mexico (storm surge), one in Gujarat (water stress), and one in Queensland (bushfire). Transition risk is concentrated in our carbon-intensive downstream product line, which represented 22 per cent of revenue in 2024."

"We have accelerated the decommissioning of our two coal-fired assets to 2028 and 2031 (previously 2035 and 2038), released approximately £340m of capital from the coal-linked trading business, and reallocated £280m of it to the low-carbon hydrogen development pipeline. The remaining £60m funds adaptation investments at our two water-stressed sites."

"We installed electric boilers at our Rotterdam and Antwerp plants in 2024, retiring 4.2 MW of gas-fired steam capacity. We relocated a processing line out of our flood-exposed Chennai facility to a lower-risk inland site. We re-specified our flagship coating product to meet a 30 per cent embodied-carbon reduction by 2025, with qualification complete in Q2 2024."

"Our Top 50 Supplier Engagement Programme, launched in 2023, has now seen 42 suppliers set SBTi-validated targets covering 68 per cent of our Purchased Goods and Services spend. On the customer side, we launched an embodied-carbon advisory service in 2024 which has supported 280 customer product specifications toward lower-carbon alternatives."

"Our transition plan assumes a 4 per cent per year decarbonisation of the Indian electricity grid between 2024 and 2035, a carbon price reaching €120/t in the EU by 2030, and commercial availability of direct-reduction iron using hydrogen by 2032. A slower grid decarbonisation path would materially reduce our 2030 Scope 2 reduction by up to 8 percentage points."

"Our 2030 Scope 1 and 2 absolute reduction target of 42 per cent vs 2020 is delivered through four named levers: coal-to-renewable-electricity switch (22 percentage points), process electrification (11 points), energy efficiency (6 points), and early retirement of two legacy assets (3 points). Each lever has an owner, a capital budget, and a milestone schedule tracked quarterly."

"The transition plan is resourced through a ring-fenced capital envelope of £1.2bn over 2024 to 2030, approved by the Board. Operating capability sits in the 34-person Decarbonisation Programme Office reporting to the Chief Sustainability Officer. Supplier engagement is funded through a dedicated £18m annual budget within the Procurement function."

"Of the nine 2024 transition plan milestones set in the 2023 disclosure, six were delivered on time, two delivered late (electric boiler commissioning at Antwerp, delayed 4 months by grid connection; supplier engagement enrolment, now at 42 against target 50), and one was re-baselined (hydrogen pilot deferred 12 months pending technology readiness)."

"Climate-related current financial effects in 2024 were £68m, comprising: £41m of accelerated depreciation on the two coal assets being decommissioned early; £14m of flood-related loss at the Rotterdam facility within cost of sales; £9m of increased CBAM-linked raw material cost; and £4m of one-off EU ETS allowance purchases."

"Our five-year financial plan includes a central transition scenario that adds approximately £180m to cumulative operating cost through 2029 and approximately £240m of additional capital expenditure. A sensitivity to a faster transition path adds a further £90m to operating cost and accelerates £150m of capital expenditure into 2026 to 2027."

"The coal-asset decommissioning acceleration led to £41m of accelerated depreciation recognised in cost of sales, and a £12m impairment charge on related decommissioning infrastructure recognised as a non-operating item. The £14m Rotterdam flood loss is net of £22m of insurance recoveries recognised within other operating income."

"We consider there to be a significant risk of a material adjustment in the next reporting period to: (a) the carrying value of the Gujarat facility, subject to ongoing water-availability monitoring that may trigger an impairment review in H1 2026; and (b) the asset retirement obligation for the two coal plants, where decommissioning cost assumptions are being refreshed in Q4 2025."

"Over the next five years we plan approximately £1.2bn of climate-related capital expenditure, concentrated in low-carbon process equipment at European sites; we expect to divest our coal-linked trading subsidiary by end 2026, with a carrying value of approximately £220m; and we will complete the retirement of two coal assets by 2031, removing £340m of property, plant, and equipment from the balance sheet."

"The £1.2bn transition capital programme is funded approximately 55 per cent from operating cash flow, 30 per cent from two sustainability-linked loans issued in 2023 and 2024 (total facility £650m, step-up/step-down linked to Scope 1+2 intensity), and 15 per cent from divestment proceeds from the planned coal-linked trading exit."

"We expect our low-carbon product families to add between £150m and £300m of annual revenue by 2028, and between £350m and £700m by 2033. Physical damage cost is expected to average £10m to £20m per year over the next five years, net of insurance. Adaptation operating expense is expected to be £25m to £40m per year, largely at the two water-stressed sites."

"Anticipated financial effects in this disclosure are prepared using our existing five-year financial planning model extended for climate inputs: internal carbon price, expected physical-loss frequency from the two external datasets referenced under paragraph 11, and product-mix assumptions from Strategy. Beyond the five-year window, disclosures are qualitative."

"We have applied a bottom-up site-level model for physical effects given our in-house modelling team and data access. For transition effects, we have used externally sourced scenarios and supplier-level price and volume effects because we do not maintain an in-house macroeconomic capability. Methods are described further below."

"For the supply-chain disruption risk identified under 10(a), we have not provided quantitative current or anticipated financial effects. Our Tier-2 supplier emissions and location data are not yet sufficient to support a defensible monetary estimate. We expect to move to a quantitative estimate for 2026 reporting as our supplier engagement programme delivers improved input data."

"For the supply-chain disruption risk, we expect financial effects to flow primarily through cost of sales (input-price pass-through) and inventory (working-capital build for critical components), with a secondary effect on revenue in the two product families most dependent on single-source inputs."

"Although we have not quantified the supply-chain disruption risk individually, it is incorporated into the combined stress scenario described under paragraph 22, which estimates aggregate operating-cost pressure of £120m to £230m under our fast-transition case through 2030."

"Under our fast-transition scenario, two downstream product lines representing 22 per cent of Group revenue would require redesign or retirement by 2030; the transition plan addresses this through the low-carbon product programme. Under our high-warming physical scenario, adaptation investment of approximately £180m would be required at three sites by 2035 to maintain operations at historic throughput."

"The three most significant areas of uncertainty in our assessment are: the pace of grid decarbonisation in our two largest Asian markets; the commercial readiness of green hydrogen for our primary process heat needs; and the regional distribution of extreme precipitation events around our South American operations."

"Our current £2.8bn of undrawn committed credit facilities plus our five-year operating cash flow forecast provide approximately £5bn of deployable capacity, against a peak scenario capital need of £1.8bn in the fast-transition case. Headroom is adequate under all three modelled scenarios."

"Of the six production sites, three are capable of process retrofit within existing permits and lease windows; two require significant rebuild (estimated £140m each); and one would require site reconfiguration or partial retirement under the fast-transition case. The two coal-linked sites are on a contracted decommissioning pathway independent of scenario choice."

"Current and planned investments reduce our fast-transition-scenario operating cost impact by approximately £180m per year by 2030 and add approximately £220m of annual revenue from low-carbon product lines in the same year. Adaptation investments at the two water-stressed sites reduce expected production curtailment losses by approximately 65 per cent in the high-warming case."

"We used three scenarios: the NGFS Net Zero 2050 (ambitious transition), the IEA Stated Policies Scenario (policy-lagged transition), and an internal high-warming physical scenario (RCP 8.5 calibrated to NGFS Current Policies for the economic layer). The internal scenario methodology is documented in our Climate Scenario Technical Note available on request."

"Our three scenarios span a diverse range: the NGFS Net Zero 2050 represents an ambitious orderly transition; the IEA Stated Policies Scenario represents a partial, policy-lagged transition; and our internal high-warming scenario represents a delayed-action future with elevated physical risk. Expected warming outcomes range from 1.4°C to above 3°C by 2100."

"The NGFS Net Zero 2050 and IEA Stated Policies scenarios are primarily transition scenarios, with a limited physical overlay. Our internal high-warming scenario is primarily a physical-risk scenario with a lagged-transition economic layer."

"The NGFS Net Zero 2050 scenario is consistent with limiting warming to 1.5°C with limited overshoot and is used as our Paris-aligned reference case, in accordance with paragraph 22(b)(i)(4)."

"The NGFS Net Zero 2050 is the most stressing transition scenario for our carbon-intensive downstream product line. The IEA Stated Policies scenario tests policy-lag exposure, relevant because three of our largest markets have made slower climate commitments. The internal high-warming scenario tests physical exposure at our four concentrated-risk sites."

"Transition scenarios are modelled to 2050 with five-year milestones. The internal physical-risk scenario is modelled to 2100 with output snapshots at 2030, 2050, and 2100 to capture chronic and episodic effects."

"The scenario analysis covers all owned and operated production sites (six plants, representing approximately 94 per cent of Scope 1 and 2 emissions) and the three revenue-largest product families (representing approximately 81 per cent of Group revenue). Joint-venture operations in Brazil and Mexico are covered qualitatively only."

"We assume the EU carbon price reaches €120/t by 2030 and €200/t by 2040 in the Net-Zero case; the CBAM ramp to 2034 as legislated; and a Section 45X-style incentive for low-carbon manufacturing in our two US states through 2033 under the Stated Policies case."

"We use the macroeconomic outputs bundled with the NGFS scenarios: global GDP growth of 2.4 per cent per year to 2030 in Net-Zero, 2.7 per cent in Stated Policies, with inflation converging to 2 per cent in both cases. Discount rates are aligned with our Group weighted-average cost of capital held constant at 8.2 per cent across scenarios."

"For the Chennai site we assume a 12 to 18 per cent reduction in JJAS rainfall by 2050 (CMIP6 ensemble median) and a 30 per cent increase in extreme rainfall frequency. For the Gulf of Mexico sites we assume a 45cm sea-level rise by 2050 and an intensification of Category 3+ hurricanes consistent with NCA5."

"Under the Net-Zero case we assume our on-site electricity demand grows 18 per cent by 2035 from electrification of heat, sourced 95 per cent from contracted renewable power by that date. Under Stated Policies we assume 72 per cent renewable sourcing by 2035. Fuel gas demand declines to below 10 per cent of current volume in Net-Zero and 45 per cent in Stated Policies."

"Our Net-Zero scenario assumes commercial green hydrogen at below €3/kg landed by 2030 and direct-reduction iron via hydrogen ready for deployment by 2032. Our Stated Policies case delays both by five years. Our internal physical scenario makes no strong technology assumptions beyond current commercial availability."

"The transition scenario analysis presented in this report was refreshed during the 2024 financial year using NGFS Phase V (released September 2024). The physical-risk analysis was last fully refreshed in 2023 and updated in 2024 for the two newly acquired sites; the next full refresh is scheduled for the 2026 cycle."

"Quantitative Strategy disclosures in this section use the cross-industry metric categories in paragraph 29: our reported transition risk exposure, physical risk exposure, capital deployed against climate opportunities, and applicable internal carbon price. Industry-based metrics relevant to our sector are integrated where applicable."