Nielsen understands the impact of climate change on our business and the communities where we live and operate, and we remain committed to identifying and delivering solutions that will address this global issue.
To that end, over the years we have invested our resources to create an accurate and complete picture of our baseline greenhouse gas (GHG) emissions and resource usage, so we could focus our efforts on initiatives that would be most effective. For example, we started a global utility data collection expansion plan in 2015, and completed it in 2018, so that we could have clearer control over our Scope 1 (direct) and Scope 2 (indirect) emissions. Our 2019 methodology change in how we calculate our utility-based emissions and resource usage—adding estimates to bridge any gaps in available data—now ensures that our reported data represent 100% of Nielsen’s global square footage for the first time in 2019.
Also, in 2019, we expanded our Scope 3 emission calculations beyond our business travel footprint, a material indicator for us, by conducting our first GHG value chain assessment. This effort has given us a more comprehensive understanding of our global supply chain footprint and helped us assess the relevance and emissions for each of the 15 Scope 3 categories.
With our Scope 1, Scope 2 and Scope 3 baselines more formalized, we are now working to enhance our climate change mitigation commitment by investigating absolute emission reduction goals. We are referencing the Science Based Target model to assess possible targets in line with the latest climate science, aligning with the goals of the Paris Agreement—to limit global warming to well below 2 degrees Celsius, and further pursue efforts to limit warming to 1.5 degrees Celsius. Nielsen will share updates on our development of new emission targets as we complete our due diligence through 2020.
In addition to our GHG emission scoping and goal setting, in 2018 we contracted with third-party consultants to conduct scenario analyses, as part of a climate risk assessment, to assess how different timelines and goal completion scenarios might affect our business. This assessment included transition and physical risk analyses.
For the transition risk-related analysis, our third-party consultant used modeling and analysis that incorporates the most recent information available on an array of factors, including energy markets, prices and technology costs, using the International Energy Agency’s (IEA’s) World Energy Model. The analysis is based on energy supply and demand outlooks, emissions abatement and investment needs in the energy supply, power generation and end use sectors (industry, transport and buildings) from the IEA’s Sustainable Development Scenario, which holds temperature rise to less than 2 degrees Celsius with 66% probability. It also examines the co-benefits for local pollution, energy access and energy security in a transition to a low-carbon energy system, and its implications for the energy industry.
Three scenarios were tested:
All scenarios are specifically based on our public target to reduce our global energy use per square foot of facility space by 5% by the end of 2020, compared with 2015, and are consistent with a 2 degrees Celsius future.
- Scenario 1: Nielsen continues emission reductions at our current pace to 2050 (i.e., reduce global energy use per square foot of facility space by up to 5% by 2020—or 1.25% per year from a 2015 baseline).
- Scenario 2: Nielsen meets the goal to reduce emissions by 5% by 2020 and then makes no further emission reductions through 2050.
- Scenario 3: Nielsen meets the goal to reduce emissions by 5% by 2020, followed by a 1% year-on-year increase in emissions out to 2050.
The transition risk analysis gave us insight into the financial implications associated with regulatory pressures related to climate change and potential reputational risks. The analysis used a compound annual growth rate (CAGR) of 4%, a discount rate of 2% and financials for fiscal year 2016. It also used our disclosed 2017 Scope 1 GHG emissions data and our Scope 2 GHG emissions data; where needed, data gaps were resolved by closing any gaps in actual data with estimates based on square footage intensity. It also included our disclosed Scope 3 GHG emissions data related to business travel.
The transition risk analysis dug deeper into the carbon pricing risk focused on the additional financial cost paid (minus current carbon prices) on emissions due to increasing carbon pricing regulations in the future, as well as an assessment of our carbon pricing risk intensity (i.e., the cost of carbon pricing risk per million dollars of revenue over time).
The result of the carbon pricing risk intensity assessment showed the cost per $1 million in revenue based on our emissions reduction scenarios (described above) in a 2 degrees Celsius future at three different points in time (2020, 2030 and 2040). The results* were as follows:
- In Scenario 1, we found that at year 2020, the carbon pricing risk intensity would be $97.89; in year 2030, it would be $588.77; and in year 2040, it would be $639.53.
- In Scenario 2, we found that at year 2020, the carbon pricing risk intensity would be $99.26; in year 2030, it would be $677.59; and in year 2040, it would be $834.76.
- In Scenario 3, we found that at year 2020, the carbon pricing risk intensity would be $100.36; in year 2030, it would be $757.27; and in year 2040, it would be $1,030.61.
As mentioned, this reflects the projected cost of carbon pricing risk per $1 million of company revenue. In other words, the results represent the expected increase in costs to Nielsen should carbon prices rise as forecasted in each scenario. For example, for every $1 million of revenue, Nielsen should expect a carbon pricing cost of $589 in 2030, under Scenario 1.
*Note: These projections were made in 2018. The third party’s carbon pricing risk forecasts are updated annually.
As part of the transition risk analysis, we also conducted a business model stress test (i.e., the change in operating margin, relative to business as usual, associated with increased operating expenditure under a future carbon pricing scenario). The methodology for this business model stress test is the same as what is described above for our transition risk analysis.
The business model stress test results were as follows:
- In the case of Scenario 1, the forecasted decrease in operating margin due to carbon pricing risk in year 2020 was 0.012%; in year 2030, it would be 0.072%; and in year 2040, it would be 0.078%.
- In Scenario 2, the forecasted decrease in operating margin due to carbon pricing risk in year 2020 would be 0.012%; in year 2030, it would be 0.083%; and in year 2040, it would be 0.102%.
- In Scenario 3, the forecasted decrease in operating margin due to carbon pricing risk in year 2020 would be 0.012%; in year 2030, it would be 0.092%; and in year 2040, it would be 0.126%.
For our physical risk analysis, the third-party expert developed a baseline climatology model, based on a mix of Coupled Model Intercomparison Project Phase 5 models from 1975 to 2005. They then ran future simulations out to 2030, sampled at five-year intervals. This method of evaluation allows a capturing of the departure from “normal” conditions evident between 1975-2005 and 2030. The results are averaged over five-year intervals to identify directional trends and reduce the noise associated with yearly oscillations reproduced by the models. To reduce individual model uncertainty, the analysis utilized a mix of global climate models (GCMs). For indicators that were not generated through GCMs, such as sea-level rise, the least mitigation effort scenario (RCP 8.5) was selected and coupled with topographic, economic and/or historical observation data. RCP 8.5 is an above-average warming scenario that represents the least global mitigation effort and greatest increase in warming; on a 25-year timescale, however, the discrepancies between Intergovernmental Panel on Climate Change scenarios (RCP 2.6, 4.5, 6, and 8.5) are minimal. A level of uncertainty exists in both the climate model projections and the assumptions we take about nonlinear business impacts. Strict statistical validation methods were applied by the third party to account for model uncertainties and to ensure a practicable level of directional accuracy in these estimates.
Based on this, the physical risk analysis developed a hotspot ranking for our global sites that showed the overall exposure to physical climate risk (such as rising sea levels, water and heat stress, exposure to cyclones, and extreme rainfall) across our entire facilities’ portfolio. Nielsen is using this hotspot ranking to guide us on any risks associated with our current facilities and potential risks with any new real estate plans or moves. This review of the hotspots is vital to ensuring both responsible business growth and our associates’ continued safety.
As Nielsen continues to build on complete and accurate emission measurements, and works to establish absolute emission-reduction goals, these findings provide direction for exploring additional areas of relevant opportunities, as well as the risks associated with any potential investments and options we choose to move forward with.
See also our Global Environmental Policy & Guidelines Across Functions for all historical data.