Sustainability is an enormous business prospect for Cargotec.
Cargotec’s sustainability work is based on a holistic and balanced approach, taking into account the aspects of environment, people and society, and governance. By being a 1.5 degree company, we strive to create value for all stakeholders. We sense the urgency of climate action and consider the transformation towards a sustainable world as a major phenomenon that will change the whole industry.
We support transformation into a fair and prosperous society. With our purpose – smarter cargo flow for a better everyday – we drive resource efficiency in our industry, in order to reach a low-carbon economy and thus turn environmental challenges into opportunities. Our climate ambition can only be achieved via inclusive cooperation with all the participants in the value chain. Making the transition just and inclusive for all ties the social and good governance aspects into our climate ambition.
The consequences of climate change are not only environmental, but there are also significant financial and social impacts. To ensure financial stability and global wellbeing also for future generations, it is our obligation to act on climate now.
Cargotec has joined the Science Based Targets initiative as well as the UN Business Ambition for 1.5°C campaign and committed to reduce greenhouse gas emissions in line with the 1.5°C warming scenario, which is the most ambitious goal of the Paris Agreement. During the year 2021, the Board discussed climate matters relating to the driving initiatives of the climate programme and EU regulatory initiatives on Sustainable Corporate Governance and Non-Financial Reporting. The Board has stated that climate-related risks and opportunities, as well as targets and action plans, should be embedded into the businesses’ strategies.
Cargotec’s strategy was refined during 2021 and focuses on sustainability and profitable growth as the main breakthrough objectives. Climate-related risks and opportunities are considered in the strategy process .Business plans, related performance objectives, annual budgets and major capital expenditures such as acquisitions and divestitures are based on the strategy. While the Board has oversight of the strategy execution, risk management, business plans, related performance objectives and major capital expenditures, the CEO together with Cargotec’s Leadership Team are responsible for the implementation of the targets and business plans. Cargotec Leadership Team approves corporate level sustainability targets, monitors climate initiatives progress and cascades targets further into the organisation. Cargotec’s Senior Vice President Strategy is responsible for the climate strategy and reports to the CEO. As strategy covers the climate-related risks and opportunities, the CEO is responsible for assessing and managing climate-related risks and opportunities.
Climate-related risks and opportunities
Cargotec is raising climate change mitigation and sustainability to the forefront of the agenda while securing profitable growth – proving to the industry, competitors and customers that these topics go hand-in-hand. Cargotec’s vision is to be a global leader in sustainable cargo flow, which is well aligned with the climate ambition that comprises absolute emission reduction targets for both own operations and the value chain. To ensure strategic relevance, Cargotec has used scenario analysis to outline the most pressing climate-related risks and opportunities. Cargotec considers time horizons of less than one year as short-term, 1–3 years as medium-term and 3–30 years as long-term. The financial planning period is three years, while the underlying megatrends are assessed with a long-term time horizon.
Technology and market risks and opportunities are deemed as the most material. Transforming the industry and mitigating climate change by providing low-carbon solutions for customers is a great opportunity for Cargotec. The demand for low-carbon products and solutions is expected to increase, resulting in increased eco-portfolio sales. With further investments in R&D and innovation, Cargotec is seizing the opportunity to develop new products and access new and emerging markets, besides exploiting the increasing demand.
The identified climate-related opportunities relate to digitalisation, electrification, robotics, renewables and circular economy and have all been considered in our strategy and financial planning already in previous years. For example, Cargotec's eco portfolio was established already in 2017, to gather together the products and services that enhance customers’ sustainability, and to disclose the share of the eco portfolio sales of the total sales. Besides electrification, automation and connectivity are considered promising measures to improve the efficiency of customers’ operations. Cargotec has invested in software and digital businesses, as digitalisation is seen to make cargo handling more efficient, and as there will be an increasing demand for efficient solutions in the future. Digitalisation will also be a major enabler for a wider societal change towards a more circular economy. Data sharing, common platforms and collaboration act as key drivers in achieving these targets and connecting industries.
When it comes to evolving markets, increasing offshore wind installations are seen as a business opportunity. The EU's target is to increase the share of renewable energy to 40 percent of final consumption by 2030. Offshore wind is a small but rapidly growing energy source and MacGregor’s offshore division already provides many solutions to support the growing market, including mooring of floating wind turbines, 3D compensated cranes for installations, and equipment for offshore wind service vessels. Growth is expected in this area as the overall share of wind power increases.
On the other hand, even though sustainable technologies are evolving and maturing rapidly, there are a lot of uncertainties around the topic. Failing to invest in the right technology is seen as a potential risk which can result in increased indirect costs if the R&D investments would not be realised. Also high demand for certain materials can lead to increased direct cost. Steel prices are expected to increase due to a more aggressive CO2 taxation or more expensive production of low emission alternatives. As a result of the electrification trend, demand for lithium batteries is also expected to increase. Limited availability and a potential rise in steel and lithium battery prices pose a market risk as price increases can impact direct costs. In case of more expensive low-carbon products, the customers’ demand and willingness to pay may become more uncertain. Producing high-class low-carbon technologies cost efficiently can be challenging; however, with its R&D and supply chain expertise, Cargotec aims to ensure solutions that can meet the customer needs also in this respect.
In terms of the physical consequences of climate change, the intensity and frequency of extreme weather events is expected to increase. Cargotec is well positioned to develop intelligent solutions to improve climate resilience of customers' operations, which is seen as a great business opportunity. Automation, robotisation, digitalisation and remote services remove the need to be physically present. For instance, by automating port operations Cargotec can support the elimination of safety risks and ensure business continuity under social distancing.
On the other hand, business interruption is recognised as a potential risk, as the business model is based on a multi-tier supply chain which is more vulnerable in case of an extreme weather event. A major weather event in one region may impact suppliers, causing delays that trickle down, and compromising timely deliveries to clients. This could impact the company's production capacity and revenues, making business continuity plans essential when mitigating such risks.
In a range of possible future states, companies are encouraged to use scenario analysis to help ensure that their strategies are resilient to climate change. Cargotec’s climate-related scenario analysis work was initiated in 2019 and the first round of the scenario work resulted in high-level considerations that supported the strategy. The work was finalised during 2021 in collaboration with an external party. In order to analyse how climate change may impact Cargotec's operations and the value chain, a scenario analysis presenting two possible pathways was conducted. In the 1.5ºC pathway, the world achieves the objectives of the Paris Agreement and manages to limit global warming to 1.5ºC degrees. The scenario follows the carbon emission pathway RCP 2.6 of the IPCC 5th Assessment report (SSP1-2.6 of the IPCC 6th Assessment Report) and the Sustainable Development Scenario, complementing Net Zero Emissions by 2050 analysis as described in the IEA World Energy Outlook 2020. In the 4.0ºC pathway, the world continues business as usual, leading to a global warming of 4 degrees. The scenario is based on the IPCC RCP 8.5 carbon emissions pathway.
The pathways were selected in order to understand future financial impacts in both favourable and unfavourable scenarios. The work covers Cargotec's short, medium and long-term time horizons. Cargotec's long-term time horizon considers the timeframe up to 2030, which is relevant as Cargotec is committed to reducing its absolute scope 1, 2 and 3 GHG emissions 50 percent by 2030 from the 2019 base year. The scenarios cover the aspects of policy and legal, technology, and society. Some certainties in all scenarios are identified, such as digitalisation, electrification, renewable energy and circular economy, and those are integrated in Cargotec’s strategy. This builds trust in the resilience of Cargotec’s strategy, regardless of the warming pathway in the upcoming years.
The scenarios, including associated risks and opportunities, have been discussed in Cargotec’s Leadership Team (CLT) meeting. The results of the scenario analysis have directly influenced the strategy, with the commitment to be a 1.5°C company being visible evidence.