Scenario analysis is used to address climate-related physical and transition risks, such as extreme weather events and climate variability, and regulatory and political shifts, respectively.

Transition risks stem from a shift to a low-carbon economy and encompass factors such as new regulations, technological innovation, changing market dynamics, and shifting consumer preferences. Over the past decades, we have effectively mitigated these risks by transforming our business model from fossil fuels to renewable energy, aligning our operations with a 1.5 °C climate trajectory.

Scenario analysis is used to address climate-related physical and transition risks, such as extreme weather events and climate variability, and regulatory and political shifts, respectively.

Our physical climate risk assessment analyses data based on the remaining operational lifetimes of our assets, which extend up to 35 years. This period is considered medium term in climate projections, as significant climate changes are not typically observed in the short term.

1. Renewable energy deployment: Positive impact (own operations) and Opportunity (own operations). The positive impact and opportunity arise from our deployment of renewable energy. Generally, risks associated with the transition to a low-carbon economy present opportunities for Ørsted, as our vision and long-term ambitions are closely aligned with this transition.

2. Carbon removal through nature-based projects: Potential positive impact (own operations). This potential positive impact arises from carbon removal achieved through our nature-based projects, which complement our efforts to reduce emissions by supporting climate action beyond our value chain and are not a substitute for direct emission reductions.

3. Scope 1 and 2 GHG emissions from our operations: Negative impact (own operations). This negative impact results from our scope 1 and 2 GHG emissions. Scope 1 emissions primarily result from fossil fuel-based heat and power generation at our CHP plants, with a smaller contribution from operation and maintenance activities.

4. Scope 3 GHG emissions from the renewable energy supply chain: Negative impact (upstream value chain). These negative impacts relate to activities that result in scope 3 GHG emissions, contributing to global warming.

5. Climate-related transition risks due to changes in political support for the renewable energy build-out: Risk (own operations). This climate-related transition risk arises due to possible changes in the political and regulatory landscape, which could result in insufficient support for renewable energy deployment or the removal of existing subsidies and incentives.

6. Climate-related physical risks (chronic and acute): Risk (own operations). The chronic physical risks relate to the dependency of renewable energy generation on natural resources, such as wind patterns, and the acute physical risks relate to a potential increase in the severity and frequency of extreme weather events.

7. Energy consumption, mainly at our CHP plants: Negative impact (own operations). We have identified a negative impact associated with energy consumption at our combined heat and power (CHP) plants, which includes the use of fossil-based fuels.

As a global leader in renewable energy, we employ a comprehensive approach to assessing and managing climate-related transition and physical risks, ensuring not only alignment with evolving regulatory requirements but also the resilience of our business model and strategy. Thus, identifying and addressing climate-related impacts, risks, and opportunities are at the core of our vision to create a world that runs entirely on green energy.

Our approach to resilience analysis consists of two main components:

1. Assessing and managing transition risks and opportunities, which include macroeconomic, political, technological, and market developments associated with the global shift to a low-carbon economy.

2. Conducting physical climate risk assessments to evaluate how climate-related hazards (chronic and acute), including extreme weather events and long-term climate changes, may impact our operations.

Transition risks stem from a shift to a low-carbon economy and encompass factors such as new regulations, technological innovation, changing market dynamics, and shifting consumer preferences. Over the past decades, we have effectively mitigated these risks by transforming our business model from fossil fuels to renewable energy, aligning our operations with a 1.5 °C climate trajectory. This proactive shift has positioned us well to capitalise on the increasing demand for renewable energy deployment. Nevertheless, we recognise that a key challenge to the overall industry is the possibility of insufficient political support for a continued renewable energy build-out, which is critical to the global energy transition.

Insufficient political or regulatory support for renewable energy deployment has also been assessed as part of the financial part of our double materiality assessment. Transition risks are particularly relevant to our operations in the US, where changes in investment conditions, reductions in subsidies, or shifting policy priorities could increase uncertainty for future projects. This is why monitoring changes to political and regulatory stability is critical for our long-term planning and investment.

Transition risks, including macroeconomic, business, and geopolitical risks, are managed through our 'Enterprise risk management (ERM) framework', supported by dedicated teams. This framework provides a high-level, principle-based structure for addressing all risks to which Ørsted may be exposed. The ERM framework sets the standards for individual risk frameworks across the organisation, ensuring that risks are identified and managed in line with the appetite for risk.

Complementing the ERM framework is the double materiality assessment (DMA), which serves as both an assessment methodology and a focused lens for driving sustainability-related matters. Risks are assessed on an ongoing basis as part of our day-to-day business. The derived insights, including the DMA outcomes, are synthesised to provide a comprehensive view of sustainability-related risks and opportunities, ensuring alignment with our strategy and business model.

We assess physical risks from two perspectives: design safeguards and business case impacts. The design safeguard evaluation ensures the structural integrity and resilience of assets against climate hazards using region-specific data. Our analysis focuses on offshore, onshore, and bioenergy assets that have reached final investment decision, representing critical components of our portfolio.

The business case impact assessment is conducted at a high-resolution, asset-by-asset level under the SSP5-8.5 worst-case scenario. This conservative approach ensures resilience measures address severe climate risks and protect long-term operational and financial stability. The scope includes offshore and onshore assets currently generating across our operating markets, representing the majority of our climate risk exposure.

Our physical climate risk assessment analyses data based on the remaining operational lifetimes of our assets, which extend up to 35 years. This period is considered medium term in climate projections, as significant climate changes are not typically observed in the short term. The long-term horizon, defined as 2060 onwards, is not applicable under our current methodology, as all existing assets are scheduled for decommissioning before that time.

For the purposes of meeting financial materiality assessment requirements, we have also considered the following time horizons: short term (covering the current reporting year and the next year), medium term (from the end of the short-term period to five years), and long term (more than five years). Applying these horizons did not lead to any changes in the results of the assessment. It is important to note that, in the context of climate change, these time horizons are relatively short term and may not fully reflect the scale of risks that develop over extended periods.

Our physical climate risk assessment analyses data based on the remaining operational lifetimes of our assets, which extend up to 35 years. This period is considered medium term in climate projections, as significant climate changes are not typically observed in the short term. The long-term horizon, defined as 2060 onwards, is not applicable under our current methodology, as all existing assets are scheduled for decommissioning before that time.

Transition risks and opportunities are integral to the business cases for our investments in new assets, technologies, and activities. We actively monitor market developments and regularly update our business cases to ensure alignment of mitigation actions with evolving conditions, maintaining a focus on delivering value to our investors.

In particular, we recognise the potential for political shifts in the US to impact the prioritisation of renewable energy policies. To address this risk, we maintain continuous monitoring of political developments and regulatory frameworks, adapting our strategies to align with changing circumstances. By closely engaging with stakeholders and leveraging our diversified portfolio and global operations, we aim to ensure resilience and flexibility in responding to such transitions. This proactive approach allows us to remain well-positioned in the face of evolving political landscapes.

Physical climate risks are assessed through design safeguards and business case impacts. The design safeguard evaluation ensures the structural integrity and resilience of assets against climate hazards using region-specific data. Our analysis focuses on offshore, onshore, and bioenergy assets that have reached final investment decision, representing critical components of our portfolio.

The business case impact assessment is conducted at a high-resolution, asset-by-asset level under the SSP5-8.5 worst-case scenario. This conservative approach ensures resilience measures address severe climate risks and protect long-term operational and financial stability. The scope includes offshore and onshore assets currently generating across our operating markets, representing the majority of our climate risk exposure.

We have demonstrated the ability to adapt our strategy and business model to address climate change by aligning projects and their associated financing with the EU taxonomy for sustainable activities. This approach ensures that financing is directed toward sustainable initiatives, supporting the transition to a low-carbon economy while maintaining access to affordable financing.

Additionally, we work closely with key stakeholders to support this alignment, reinforcing our capacity to redeploy resources and decommission assets effectively as part of our long-term strategy. We remain dedicated to a robust understanding of climate-related risks. To support this, we plan to re-run the full climate risk assessment for our asset portfolio in 2025, incorporating updated methodologies. This approach ensures our climate-related risk management practices remain thorough, efficient, and aligned with the observed level of risk.

While we are committed to driving a just transition to renewables, we recognise that various factors, including macroeconomic conditions and technological advancements, influence the pace of progress. To mitigate these risks and capitalise on opportunities, we advocate for political support and initiatives that foster stable macroeconomic conditions, ensuring the continued deployment of renewable energy.