Managing Opportunities and Risks
Assessing the risk related to sustainability factors 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 for transparency (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
- Helps us to act sustainably
The risk management system was revised in 2020 to 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.”
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 Opportunities and Risks in the Annual Report 2021). We also provide a wide range of information in this sustainability report based on the TCFD framework for disclosing climate-related risks (see Environment and Climate).
Potential Sustainability Risks for Vonovia
- Unfavorable carbon tax
- Failure to achieve climate path and carbon intensity targets
- Violations of social charters
- Failure to comply with statutory rent control provisions
- 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
- Loss of sustainable financing instruments due to a failure to meet sustainability targets
- Long-term economic downturn triggered by macroeconomic and geopolitical risk factors, such as the intensification of trade wars, the economic impact of the coronavirus pandemic or foreign policy conflicts
Since 2020, the risk of an “unfavorable carbon tax” has been considered to be of material significance for the company, and is therefore closely monitored by the Management Board and the Supervisory Board. The German government has decided to levy a carbon price on energy used for heating as a policy instrument and a 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. We were able to pass on the entirety of this cost to our customers in the year under review – it therefore had no effect on earnings. The new federal government is trialing a graduated model which divides the carbon price between tenants and landlords. Landlords are charged more in buildings which are less energy efficient. This model will be introduced in mid-2022 or at the beginning of 2023. We continue to estimate that the potential risk volume could be between € 25 million and € 100 million in the next five years, with a probability of occurrence of between 60% and 95%.
The Management Board bears full responsibility for risk management. The Head of Controlling reports to the 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 2021 Annual Report.