Process of Risk Analysis: The Three-step Process

The three-step process of Risk analysis is a useful tool in identifying the risks and opportunities for future scenarios. Risks are defined and categorised with chosen scenarios while adhering to the purpose, time and intensity of the impacts. Collecting Internal and external data which addresses exposures, vulnerabilities, and hazards is essential. Calculation of impacts to follow in risk identification and uncertainty analysis to discover financial implications.

Risks

There are two subdivisions of risks: transitional risks and Physical risks.

Transitional  Risks

Transitional risks occur when the APEC economies are transitioning, targeting net-zero emission. Changes will occur in policy, regulations, legislation, technology and market predilections as a result of climate change.

Governments are increasing regulations on carbon emissions by imposing more significant obligations on information disclosures relating to sustainable developments. APEC has placed a particular emphasis on pollution control and prevention and sustainable infrastructure development. Facing the growing demand for construction and urban development, APEC advocates the use of sustainable business models supporting efficient and low carbon-emitting products and processes (APEC, n.d.). It is likely to see an increased number of frameworks to address;

• Cost on fossil fuels by new carbon pricing mechanisms
• Impose restrictive cap and trade systems
• Increased costs to firms emitting carbon dioxide

If the energy efficiency and emission control measures are not sufficient, Lendlease's operational costs will increase due to renewable energy standards, regulations and taxes. As a response to the policy and legal risks, specific short-term and long-term plans should be in place to address the main focus areas.

• Creation of Carbon dioxide and energy performance management strategy and policies.
• Integrating emission management in the management ( including Carbon emission impacts and costs in CAPEX and M&A decisions).
• Evaluate profitability in each scenario planning and management planning for emission levels.

Technology

The demand in replacing existing products and services with those based on low-carbon technologies must be taken into consideration on analysing future scenarios. Both new and old technologies play a fundamental part in low-carbon economies. Technological transition in the supply chain, operations and other sectors of the business can be costly. The risk of the cost of new technology is considerably greater than current carbon pricing mechanisms which could prevail from successful implementations. Lendlease to make assumptions on performance and the costs associated with the deployment of new technologies. Following are the key focus area in technological shifts.

• Energy ( Solar, wind, biofuel, unconventional gas, electric)
• Energy storage
• Energy efficiency (heating, ventilation, air conditioning)
• Low carbon emission solutions in material (cement/concrete, steel)
• Low energy consumption operations
• Recycling and waste disposal

Engagement in initiatives which requires large investments in the development of new technologies will be critical to future business processes.

Market

Each scenario expects shifts in consumer behaviours, market fluctuations, uncertainty and a rise in materials and costs. As the carbon debate intensifies in the future, sustainable business processes in the construction industry and building materials will be a primary focus of the customers in their decision-making. If the regulatory framework fails to enforce low-carbon consuming products, customers may be reluctant to pay the extra costs integrated with the low-carbon Initiative. This will put Lendlease's net-zero carbon emission initiative and the road map at risk. Construction and real estate markets must ensure a high energy-efficient building has a competitive edge in future markets. Organisations that are not taking initiatives in emission reduction should see a decline in their market share.

Customer or community perception changes, emission criticisms, and increasing concern among stakeholders can harm Lendlease's brand image. Supporting sustainability-focused business processes and ensuring the public of Lendlease's environmental responsibility will help to maintain the Lendlease brand. Lendlease's effort and contribution to climate change mitigation and adaptation must be well documented and transparently communicated among stakeholders and the public. Seeking environmental credentials in different markets and appropriately marketing them is vital in communicating the efforts.

Physical Risks

Physical risks identify the physical impacts that occur in Lendlease's business operations due to climate change. Effects of climate change will disrupt the operations that will lead to high operational costs and reduced production capabilities and capacities. As the physical risks affect the whole value chain, pricing structures will change in the future. Acute and Chronic are two subdivisions of physical risks, which are separated based on their behaviours and nature.

Acute

Acute risks are event-driven risks, including the increased severity of extreme events such as cyclones, floods, bushfires and heatwaves. Possible impacts would be losses or damages to assets including plants, machinery, equipment and properties. These impacts will lead to lowering production capacity and revenue.

Increasing the resilience of assets by improving defences, can reduce the impacts and creating contingency plans will reduce the effects to the business practices. Arranging insurance to the crucial assets is helpful for fast recovery.

Chronic

Chronic risks define as long-term shifts in the climate, which include high temperature, which causes the rise of sea levels. Sites and assets are in a direct impact on the rising sea levels, and droughts may create countless issues. Operational costs expect to be varied with impacts, including scarcity of resources, and increased cost of raw materials.

Developing mitigation strategies, creating preventative measures, and risk assessments based on asset locations are a few measures that can implement. Contingency planning and careful and strategic supplier selections will be useful for quick and long-term responses to address the impacts.

Opportunities

TCFD recommendations identify five areas of climate change-related opportunities that Lendlease can utilise in their effort in mitigating and adopting net-zero emission pathways.

Resource Efficiency

Creating new policies to address resource efficiency can create better outcomes for the construction industry. Using efficient models in transportation, production, and distribution can contribute to reduced operating costs, increased production and increased revenue. The use of recycling and reduced wastages are beneficial in workforce management and planning, which results in lower operational costs.

Currently, there is a significant shift in the Construction industry in creating building designs providing a substantial reduction in energy usage. Elements to consider in creating energy-efficient buildings are Bioclimcatic architectures, high-performing building envelops, and high-performance controlled ventilation.

Energy source

The usage of low emission energy sources will contribute to reduced operational costs and reduced exposure to future fossil fuel price hikes. Supportive policy incentives should be created within the organisation to keep a continuous lookout for the appropriate new and emerging technologies. Resulting favourable outcomes would be increasing investments and capital growth and reputational growth, which will create a higher demand for goods and services.

Product/Services

Developing and investing in R&D and innovation of new low carbon-emitting products and services will have a significant return. Setting up climate adaptation policies and insurance risk solutions that support innovative initiatives will put Lendlease in a competitive position in shifting consumer preferences.