Future Viability and Capital Market
Managing Opportunities and Risks
Themes
Assessing the risk related to sustainability factors takes the increasing scale of their impact into account and is becoming increasingly important in the list of requirements that investors and analysts look at. This is reflected, by way of example, in the recommendations made by the Task Force on Climate-related Financial Disclosures (TCFD), which call upon companies to disclose the direct and indirect financial impact of climate change on their businesses (see Implementation of the TCFD Recommendations).
Vonovia has a comprehensive risk management system in place that enables it to identify, assign weightings to, and manage opportunities and risks relevant to the company. This:
- Reduces potential threats
- Secures the future viability of the company
- Promotes our strategic development
- Supports sustainable conduct
Vonovia used a series of extensive risk workshops in the second half of 2020 to improve its risk management system and bring it into alignment with the sustainability aspects of the corporate strategy. ESG risks were examined and assessed in terms of their impact on Vonovia (outside-in view) and their impact on the environment and society (inside-out view); an approach known as “double materiality.”
Integration
of sustainability aspects into risk management
For transparency purposes, we explain the risk situation at Vonovia in detail in our annual reporting and provide an up-to-date risk assessment on behalf of the Management Board (see chapter Opportunities and Risks – Annual Report 2020). We also provide a wide range of information in this sustainability report based on the TCFD framework for disclosing climate-related risks (see Implementation of the TCFD Recommendations).
Potential Sustainability Risks for Vonovia
- Unfavorable carbon tax
- Failure to achieve climate path and carbon intensity targets
- Effects of crises or disasters such as floods, earthquakes or extreme weather events
- Non-compliance with changing construction regulations
- Non-compliance with legislation on working conditions, such as minimum wages and safety standards and human rights in the supply chain
- Non-compliance with legislation on occupational health and safety management
- Violations of the Code of Conduct, the Anti-Corruption Policy, legal requirements relating to bribery and corruption
- Failure to meet the expectations of stakeholder and statutory requirements in terms of diversity
- Failure to meet statutory requirements and expectations of investors or analysts concerning sustainability reporting
Risks are presented on a net basis in a heat map. Red areas signify dangerous or existential risks; risks in yellow areas are significant for the company. Red and yellow risks are closely monitored by the Management Board and Supervisory Board. Risks allocated to the green areas are less important for the company.
The risk of an “Unfavorable carbon tax” was reclassified as probable in 2020 (yellow risk). The German government has decided to introduce a carbon price as a policy instrument and climate protection measure. The price of carbon emissions has been set until 2025 and will increase annually from a starting point of € 25 per ton in 2021. The Climate Action Program 2030 will also examine changes to tenancy law enabling the costs of a carbon tax to be passed on to tenants. As at the start of 2021, all of the related costs can be passed on. We assume that this will still be possible until at least 2022. We estimate that the potential risk volume could be between € 25 million and € 100 million in the next five years.
The Management Board bears full responsibility for risk management. The Head of Controlling reports to the Chief Financial Officer (CFO) and is responsible for the operational management of the risk management system. Risk Controlling initiates the periodic risk management process and consolidates and validates the reported risks with the assistance of risk owners – managers at the level directly below the Management Board.
Detailed information about opportunities and risks is provided in the Opportunities and Risks section of the 2020 Annual Report.