37 Environmental, Social and Governance Report 2022 PILLAR 2: PROPERTY PORTFOLIO Climate change poses a critical and existential risk to all businesses and communities around the world. As a responsible corporate citizen, ESR is conscious of the environmental and social impact of our businesses and operations on both the planet and people, and thus, we seek to identify and mitigate the material climate-related issues pertinent to the business. ESR has supported the Paris Agreement since 2020 which aims to limit global warming to within 1.5 degrees Celsius of pre-industrial levels. In our bid to transition to a low-carbon future, the Group adopts the principles recommended by the Task Force on Climate-related Financial Disclosures (TCFD) Framework. The framework seeks to integrate climate-related considerations into strategic, investment, and operational decision-making, and to quantify the financial implications of the associated climaterelated risks. The Group is committed to reducing the physical vulnerability of our real assets, as well as identifying opportunities to enhance the resilience of the business against the effects of impact presented by climate change. Under the TCFD Framework, ESR aims to adapt to and mitigate climate change through climate-related risk assessments. This process involves assessing, identifying and monitoring climate-related risks and opportunities using climate scenario analysis that is based on the Intergovernmental Panel on Climate Change (IPCC)’s global development pathways. Associated potential and actual impacts of these identified climate-related risks and opportunities will then be evaluated and quantified by the Group, so as to derive mitigating strategies to manage climate change and strengthen the business, assets and operations. Climate-related risks are divided into two major categories, namely physical risks and transition risks: Types of Climate Risk Physical Risks Risks related to the physical impacts of climate change, which may be event driven (acute) or long-term shifts (chronic) in climate patterns. Such physical risks may have financial implications including direct damage to assets and indirect impacts from supply chain disruptions. The Group’s financial performance may also be affected by changes in the availability and quality of natural resources (e.g., water), food security, as well as extreme weather events affecting the Group’s assets, operations, supply chain, transport requirements and employee safety and well-being. Transition Risks Risks related to the transition to a low-carbon economy, which may entail extensive policy, legal, technological and market changes to address mitigation and adaptation requirements related to climate change. Depending on the nature, speed and focus of these changes, transition risks may pose varying levels of financial and reputational risks to the Group. Climate Change Resilience Preserved forest area at ESR Yokohama Sachiura Distribution Centre 1
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