Task Force on Climate-related Financial Disclosures (“TCFD”)

We are committed to implementing the relevant recommendations of the TCFD, providing our stakeholders and investors with insight into the key climate-related risks and opportunities that are relevant to our business, and how these are identified and managed. We report against the majority of the eleven recommendations of the TCFD in this year’s disclosures, in advance of the requirement becoming mandatory next year. Of the recommendations, we believe we are largely ready to meet the recommended disclosure requirements in the Governance, Risk Management and Metrics & Targets sections. Like many other organisations, we are evaluating how best to meet the recommendations in the Strategy section, specifically scenario analysis.
 

Governance and risk management

Ongoing oversight of climate-related issues is carried out by our sustainability group and is co-chaired by two members of the Executive Management team (see sustainability governance section). The Group meets quarterly and is the forum for determining our sustainability strategy and reviewing performance. This includes identification of climate-related risks that are managed by the Board via our corporate risk management process (see the Audit Committee report for details of our approach to risk management).

In particular, the Board primarily manages climate-related risk through the established investment appraisal process where it scrutinises proposed acquisition, development and refurbishment plans which may include climate-related aspects of design. Ongoing risk identification and management are through day-to-day management, for example through proposed or actual response to changes in regulation such as Minimum Energy Efficiency Standards (“MEES”).

Our commitment to address climate-related risks is embedded across the business, through a carbon reduction KPI. The performance against this KPI is linked to executive remuneration, aiming to incentivise progress against carbon emissions reduction targets.
 

Strategy

Our business is exposed to both risk and opportunity from climate change primarily as a result of owning and operating property assets. The nature and level of risk is dependent on government, business and society’s response in the short and long term. In the event of a strong response to climate change in the short term up to 2030, our business will be affected positively and negatively by the transition.

With a limited global response to climate change, our business will be affected in the long term, beyond 2030, by physical effects such as extreme weather and higher temperatures.

Accordingly, our analysis focuses on both transitional risks, up to 2030, and physical risks beyond 2030.
 

Transitional risks and opportunities

Our primary transition risk is regulatory changes relating to MEES and, more broadly, the investment required to become an operationally carbon neutral business. This will inevitably increase operating and compliance costs. An increase in capital investment may be required to ensure Group assets meet minimum standards.

In the event that specific assets cannot be cost-effectively improved, there may be a downward pressure on valuation due to shifting market demand. The corollary of this is that assets well above minimum standard may attract premium valuations.

To ensure readiness with MEES, we identified UK locations with offices that would fall under the new regulations. We have begun the process of conducting energy efficiency assessments on these locations. At 31 October 2021, 50 UK stores now have an Energy Performance Certificate (“EPC”) rating (33 in 2020) representing 41% of UK floor area. In total, 40% of the Group portfolio by floor area is now certified (26% in 2020) with 80% of this area in buildings with an EPC rating of C or higher.

We estimate that the roadmap to operational net zero will require a total investment of c. £3 million to 2035, with investments in later years subject to detailed business case evaluation.
 

Physical risks

The physical risks to our business relate to the increasing likelihood of extreme weather events and their consequences, including impact on asset availability (local shutdowns) and higher maintenance, capex and insurance costs.

In relation to the UK property portfolio (~80% of Group floor area and store count), the primary physical risk is flooding related. Based on current data, our insurer’s flood assessment at the last renewal indicates that 88% of the Safestore portfolio (by store count and floor area) is located in zones rated as low, negligible or moderate flood risk based on the “UK flood maximum” criteria.
This increases to 95% on the “UK flood average” basis. Where Safestore does invest in property in higher risk areas, risk mitigation measures are usually proactively deployed. As such, even in extreme weather scenarios the majority of the UK portfolio is not likely to be impacted from an ongoing operation, insurance risk premium or valuation basis. Mitigation measures (where deployed) should minimise disruption at higher risk sites and these locations may experience increased demand from impacted local communities as they seek temporary storage for their belongings. In summary, we believe that, overall, Safestore has low exposure and vulnerability to physical climate change risk.

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Metrics and targets

The self storage sector is not a significant consumer of energy when compared with other segments of the real estate landscape.
As a result, operational emissions intensity tends to be far lower versus other real estate sectors. According to a recent report by KPMG and EPRA1), self storage generates the lowest greenhouse gas emissions intensity (5.75 kg/m2) for Scope 1 and 2) of all European real estate subsectors, with emissions per m2 less than 30% of the European listed real estate average (19.5 kg/m2)), and notably 21% of the emissions intensity of the residential subsector (27.0 kg/m2). Reflecting the considerable progress made on efficiency measures and waste reduction to date, Safestore’s emissions intensity (3.9 kg/m2)) is considerably lower (-32%) than the self storage subsector average.

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Nevertheless, as part of our commitment to SDG 13 (Climate action) we are working towards a previously set near term carbon reduction target to 2022 (see sustainability targets and KPIs). In addition, this year we are introducing a commitment to work towards operational carbon neutrality (net zero) by 2035. This commitment covers Scope 1 and 2 emissions plus Scope 3 emissions which relate to ongoing operations (water, waste, electricity transmission and distribution and business travel). We aim to achieve this through a combination of consumption reduction initiatives such as phasing out of gas heating in the UK portfolio and ensuring all energy consumed is self-generated (where viable) or purchased from certified renewable sources. Some residual emissions may require the purchase of carbon offsets from a credible scheme(s).

We report and analyse our absolute and like-for-like energy consumption and greenhouse gas (“GHG”) emissions in line with the EPRA sBPR recommendations. These are disclosed in the Our Environment section. Supplementary data can be found on our corporate website.

Through a range of energy efficiency initiatives and a switch to 100% renewable electricity, we are on track to reduce our absolute carbon emissions vs 2013 baseline by 50% by 2022. This progress in absolute emissions reduction is despite a c. 35% increase in portfolio floor space. As a result, emissions intensity is currently 65% below 2013 levels which is ahead of the 2022 target of 58% below the 2013 baseline.


Note
1 – KPMG/EPRA: Overview of real estate companies’ environmental performance, October 2021 (based on EPRA sBPR data sets for 88 listed companies).
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