Page 129 - Sigmaroc Annual-Report 2023

affected quarry, as work can be diverted to a different area of the quarry whilst groundwater is pumped away.
Even in the event of downtime at a particular quarry, SigmaRoc has the capacity to rebalance activities across the network and therefore recoup any costs lost, admitting some transfer costs. Redundancy in stock is maintained across quarries, which could also remediate any downtime losses. All sites exposed to a medium/high risk of sea level rise are able to divert resources to alternative sites in the event of a storm surge event. None of the sites identified as being at risk of river flooding are material in terms of financial risk.
In addition, the geospatial analysis only models regional flood defences at a handful of countries, so SigmaRoc’s risk exposure may be lower than indicated due to flood and storm defences that have not been accounted for. Further, sea level rise is likely only to materialise in the very long term and could therefore fall outside reasonable business planning horizons.
2. Carbon pricing within operations
The scope of carbon pricing (applied directly or indirectly) is expected to expand over the medium term, and the price of carbon is expected to rise. SigmaRoc is already exposed to the EU Emissions Trading Scheme (ETS), although does not fall under the Carbon Border Adjustment Mechanism (CBAM) so the loss of free allocation by 2035 is less substantial than in other adjacent sectors, namely cement.
Given the nature of the sector, SigmaRoc is a large emitter with greater limitations on its ability to decarbonise, especially in scope 3 emissions given its supply to customers with high emissions. Some operations will be particularly challenging to decarbonise, while machinery can be replaced with more efficient and cleaner models, substantial emissions (approximately 70-80%) arise from the chemical reactions within kilns.
Mitigation
SigmaRoc is focused on the transition from fossil fuels to fossil free energy and biofuel, and improvements in operational efficiency such as efforts to reduce machinery idle time. The Group continues to install renewable energy capacity on site, upgrade its vehicle fleet, conduct heat and power loss reviews of large assets, expand carbon capture, utilisation and storage (CCUS) infrastructure, and purchase PPAs. Capital expenditure to decarbonise operations, including the replacement of higher-emitting machinery, is largely covered by business-as-usual expenditure.
In addition, SigmaRoc is able to pass on costs related to ETS credits through to customers in contracts. Addressing the challenge posed by chemical reactions in kilns is an ongoing challenge requiring further research and development. In the meantime, costs related to kilns can be passed through to customers in circumstances where sites are cohabited with customers. In addition SigmaRoc actively monitors the evolution of the ETS Carbon Credit pricing and operates a rolling hedging strategy, typically spanning three years forward. It also expects to see similar strategies applied in take-over targets thereby ensuring alignment in the approach to both pass-through mechanisms and Carbon cost mitigation.
3. Carbon pricing within value chain
European carbon pricing policies may lead to higher operational costs for shipping, impacting distribution
networks. Moreover, there is a concern that customers might be incentivised to procure materials from quarries located in less regulated jurisdictions, where carbon pricing is less stringent, potentially putting European suppliers at a competitive disadvantage.
Mitigation
SigmaRoc leverages the cohabitation of sites with customers to ensure more sustainable distribution practices. By strategically locating sites near key customers, the Group reduces the need for extensive shipping, mitigating the impact of carbon pricing on transportation.
The Group can also avail itself to alternative transportation methods, particularly road, rail and sea transportation, depending on the overall cost.
4. Operational decarbonisation
SigmaRoc’s decarbonisation ambitions face a hurdle in potential localised grid capacity constraints, which may impede the electrification of operations. This may increase operating costs if reliance on pricier fuels, subject to carbon levies, becomes necessary or cannot be phased out sufficiently quickly.
Additionally, the transition of machinery to electricity or biofuel carries the inherent risk of upfront costs. While these costs are strategically integrated into business-as-usual activities, they remain a critical aspect of natural machinery churn. There may however be limits on the availability of funding for such a transition, and potential constraints on the availability of such technology. More significantly, the development of carbon capture, utilisation and storage (CCUS) capabilities on the estate poses a distinct risk given that CCUS investments do not align with routine equipment churn and require a focused financial strategy. Development of CCUS capabilities will also depend on third parties.
Mitigation
Mitigation involves investment in on-site renewable electricity capacity installation, and planned adaptation of machinery to ensure gradual shift minimising financial strain.
5. Failure to meet/maintain expected ESG credentials
There is a risk that failure to meet non-financial reporting expectations could lead to reduced access to capital and potential divestment. Further, failure to maintain customer expectations on sustainability performance could lead to loss of business and reputational damage, ultimately leading to lower revenue and difficulty winning new business.
Mitigation
Mitigation would largely involve continually improving sustainability reporting, improving sustainability engagement with stakeholders and increasing focus on sustainability. This may involve costs related to the application of additional internal sustainability resources, additional reporting and data management resource and systems. There may also be additional costs related to use of external sustainability consultants to assist in the Group’s reporting and regulatory obligations.
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