In line with Vestas' Safety, Quality, Health, and Environmental (SQHE) Policy and Health, Safety, and Environment (HSE) framework, we have a commitment to proactively identify and manage all material IROs related to climate change mitigation and adaptation, and to promote risk-based thinking and acting. Our SQHE Policy and HSE framework together serve as the key policy anchors to manage all environmental IROs identified throughout the environmental sections of the sustainability statement i.e. E1, E3, E4 and E5.

The process to identify IROs started with our CSRD workforce reviewing all the sustainability matters in ESRS 1, Appendix A. Impacts were described and assessed in a tool including the entire gross list where materiality of each matter is determined by its positive or negative nature, actual or potential impact (most topics were actual) and the severity and likelihood of impact. The topics were listed to be assessed on a sub-sub-topic level.

Negative impacts are prioritised based on severity (considering scale, scope and irremediability) and likelihood. Positive impacts are prioritised based on scale, scope, and likelihood. Our impact threshold honours the principles: Inclusion of all impacts with "critical" severity and severity taking precedence over likelihood – all within timeframes consistent with the ESRS. This is the process to assess and prioritise impacts supported by a quantitative scoring methodology.

Examples of core activities in our upstream value chain are related to extraction of raw materials, refineries, smelters, components assembly and transport. Activities in our operations relate to project development, construction, manufacturing and service. Our downstream value chain mostly comprises activities in our customers’ scope, decommissioning and end-of-life solutions.

As demand for renewable energy is increasing, it also means that our value chain will scale significantly. It is therefore important that we address the risks that come with scaling and the heightened adverse effects across the value chain that come with growth. After assessing specific activities, business relationships, geographies, and other factors, the topics of climate change, circularity, biodiversity, human rights and health and safety have been found to represent overarching adverse impacts across our value chain and these are addressed in our current sustainability strategy and mitigation measures.

The analysis of physical climate risks covers a wide range of chronic and acute climate-related hazards in line with the EU Taxonomy, excluding hazards that have been deemed irrelevant such as avalanche, saline intrusion, and permafrost thawing.

The physical risks are assessed on site level using geospatial coordinates for our manufacturing facilities, warehouses, and critical suppliers, while they are assessed on a national level for our construction and service sites. Detailed desktop analysis, including assessments of a wide range of climate metrics, is always conducted in the initial phase of a development project. The analysis of transitional climate risks follows TCFD’s recommendations and covers Vestas at entity level, our supply chain, and key stakeholders, such as customers and investors. No transition risks are excluded from the analysis.

Climate-related impacts, risks and opportunities were identified through engagement of internal and external subject matter experts, as well as external stakeholders such as NGOs and customers. Through workshops and interviews both within and outside our organisation, we have collected input that strengthens our understanding of the importance of areas related to climate change. Through life cycle assessments and carbon accounting, we calculate our GHG emissions and estimate paths to reach carbon neutrality in line with our targets.

Physical climate risks are assessed using third-party software that allows site-level analysis of a wide range of acute and chronic climate hazards and projections of climate variables across multiple future looking scenarios and time horizons.

The scenarios are assessed across three different time horizons; short-term 2030 (2021-2040), mid-term 2050 (2041-2060), and long-term 2070 (2061-2080). The time horizons are different from the ESRS. Although the risk of drastic environmental changes is most significant in the long term, they average lifetime of our assets, our strategic planning horizon, and our capital allocation plans do not stretch beyond the mid-term. Therefore, assessing physical risks in the short and mid-term is most strategically relevant. The materiality of the acute and chronic physical risks is determined based on the potential impact on Vestas using a consequence/likelihood scale.

The scenarios are assessed across three different time horizons; short-term 2030 (2021-2040), mid-term 2050 (2041-2060), and long-term 2070 (2061-2080). The time horizons are different from the ESRS. Although the risk of drastic environmental changes is most significant in the long term, they average lifetime of our assets, our strategic planning horizon, and our capital allocation plans do not stretch beyond the mid-term. Therefore, assessing physical risks in the short and mid-term is most strategically relevant. The materiality of the acute and chronic physical risks is determined based on the potential impact on Vestas using a consequence/likelihood scale.

The scenarios are assessed across three different time horizons; short-term 2030 (2021-2040), mid-term 2050 (2041-2060), and long-term 2070 (2061-2080). The time horizons are different from the ESRS. Although the risk of drastic environmental changes is most significant in the long term, they average lifetime of our assets, our strategic planning horizon, and our capital allocation plans do not stretch beyond the mid-term. Therefore, assessing physical risks in the short and mid-term is most strategically relevant. The materiality of the acute and chronic physical risks is determined based on the potential impact on Vestas using a consequence/likelihood scale.

The physical risks are assessed on site level using geospatial coordinates for our manufacturing facilities, warehouses, and critical suppliers, while they are assessed on a national level for our construction and service sites. Detailed desktop analysis, including assessments of a wide range of climate metrics, is always conducted in the initial phase of a development project. The analysis of transitional climate risks follows TCFD’s recommendations and covers Vestas at entity level, our supply chain, and key stakeholders, such as customers and investors. No transition risks are excluded from the analysis.

Changes in specific climate variables are assessed using three of IPCC’s Shared Socioeconomic Pathways (SSP) SSP 1-2.6, SSP 2-4.5, and SSP 5-8.5. SSP 1-2.6 is an aggressive mitigation scenario, where consumption is focused on minimising material resources and energy usage, and net-zero is reached after 2050. SSP 2-4.5 is a ‘middle of the road’ scenario, where emissions remain around current levels until mid-century from where they decline towards 2100. SSP 5-8.5 is a high-emission, worst-case scenario, where fossil-fuel development and dependence continue throughout the 21st century.

The scenarios used are the International Energy Agency’s Net Zero Emissions by 2050, representing a climate scenario in line with limiting global warming to 1.5°C, and the Stated Policy Scenario, representing a more conservative benchmark for the future, not taking for granted that governments will reach all stated goals and energy-related objectives.

These scenarios are all relevant to Vestas as they cover both a very optimistic and a more realistic future scenario. Opposite to physical risks, transition risks and opportunities are more extreme in scenarios that assume successful mitigation of the worst effects of climate change, as drastic political and regulatory measures are necessary to change the current path. Therefore, these scenarios prepare companies well to adapt to changes in status quo.

Transition risks and opportunities are identified through literature review, and engagement of internal and external subject matter experts. A list of sector-specific risks only is applied, however, market and opportunities are identified alongside a list of sector-specific opportunities related to resource efficiency, energy sources, products, service, and markets.

Afterwards, these risks and opportunities are ranked based on their potential impact on Vestas using a consequence/likelihood scale. The assessment of the potential impact of the most material transition risks and opportunities is based on two different scenarios and assessed across three different time horizons; short term (one-five years), medium term (five-10 years), and long term (10-30 years).