Risk management

Comprehensive
(GRI 2-12, 2-13, 2-16) (TCFD GDR-C)

El Puerto de Liverpool analyzes and mitigates climate and business risks according to the recommendations of both internal and external experts. We set metrics and targets for prevention and mitigation, with specific actions taken across various initiatives.

We foster a culture of prevention through employee training on environmental metrics, health, and safety. We organize civil protection drills and apply the NOM-035-STPS-2018 standard for managing psychosocial risks. Communication of occupational risks is centralized, with responses coordinated between local and corporate teams. We conduct internal audits of critical points aligned with environmental management standards based on ISO 14001.

Physical risks are addressed through internal protocols, emphasizing the shared responsibility and commitment of all employees to risk management.

Main Risks – El Puerto de Liverpool
Market
Consumer spending
Retail industry competition
Consumer preferences
Sales channel strategies
Real-estate industry dynamics
Regulatory
Marketing and product information regulations
Information privacy laws
Environmental, labor and health & safety laws
Operating
Supply chain issues
ESG practices in the supply chain
Talent recruitment and retention
Systems impact and/or disruptions
Financial
Availability of capital
Customer payment capacity
Changes in product prices
Changes in operating input prices
Exchange-rate fluctuations
Physical
Location reconstruction or repair
Collateral losses
Merchandise supply failures

El Puerto de Liverpool is one of the first Mexican retail companies to publish a report aligned with TCFD recommendations.

Climate risks and opportunities
(TCFD EST-A, EST-B, EST-C, GDR-A, GDR-B)

In keeping with our commitment to limiting climate change and aware of the importance of clear and open communication on how this phenomenon may affect our company, El Puerto de Liverpool works to align reporting and internal practices with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). Our report was created on the basis of prior efforts, including exercises in greenhouse gas (GHG) emission accounting and responses to CDP questionnaires.

This report is intended as a complement to our Group’s annual reporting efforts. Its central aim is to indicate (i) the areas reported information aligned with TCFD recommendations and (ii) which additional information must be included to reinforce disclosures following TCFD guidelines.

In reporting this information, El Puerto de Liverpool (EPL) became one of the first Mexican retail companies to publish a report aligned with TCFD recommendations.

Selection and prioritization of main risks and opportunities
To identify the main physical and transition risks and opportunities to which our company may be exposed, we reviewed the most pressing issues facing the retail industry, particularly in the Mexican context.

As a first step, we identified 21 risks and opportunities, which were discussed in workshops held in various sessions with 12 key EPL departments. Meeting participants received an overview of the potential impact of the risks identified in EPL’s business strategy, with 10 salient risks and opportunities highlighted for further qualitative evaluation.

Bearing in mind that physical climate risks are evident only in patterns that emerge gradually over time, we analyzed climate projections through the year 2050, and to gain a clearer view of the possible change in risks, we also selected the year 2030 as a medium-term horizon. To examine our transition risks and opportunities, since many countries have set ambitious climate targets for 2030 and some have set net-zero targets for 2050, we chose these two periods as the medium and long-term horizons, respectively.

Summary of impacts of selected climate risk and opportunities
To analyze our climate risks and opportunities, we used the following climate scenarios:

For physical risks:

  • Representative Concentration Pathway (RCP) 8.5: RCP8.5 is aligned with a very significant increase in the global mean temperature by the end of the century (1.6 - 4.8°C) and is the highest-impact scenario.
  • RCP 4.5: The RCP4.5 scenario assumes a moderate level of mitigation and is aligned with an increase of approximately 1.1 - 2.6°C in the global mean temperature by the end of the century.

For transition risks and opportunities:

  • Business as Usual (BAU) Scenario: This scenario takes into account projections from the International Energy Agency (IEA) for the Stated Policy Scenario (STEPS) and from the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) for the current policy scenario.
  • Below 2°C: The scenario we used aligns with the IEA’s Stated Policy Scenario (APS) and the NGFS Below 2°C scenario.

The following are the results of our medium-term (2030) and long-term (2050) analyses:

Implications Risk rating
2030 2050
Physical risks Implications Increase in the intensity and frequency of tropical cyclones
By 2030:
  • There is too much uncertainty surrounding climate projections, which makes it difficult to predict changes in the intensity and frequency of tropical cyclones.

By 2050:
  • An increase in the number of very intense tropical cyclones is expected, especially those originating in the Pacific Ocean. Projections show that, compared to the historical period, there will be 5 more category 4 or 5 hurricanes per decade on the Saffir-Simpson scale, with the potential to impact Mexico.
 Risk rating 2030 Uncertain 2050 Moderate
Implications Increase in the frequency, intensity, and duration of extreme precipitation events
  • For the 10 EPL assets with the highest exposure to extreme precipitation events, it was found that these events would increase in intensity under both climate scenarios, especially in the long term.
  • In the long term, under the RCP8.5 scenario, maximum daily precipitation accumulations could increase by up to 17%.
 Risk rating 2030 Low 2050 Moderate
Implications Increase in the frequency and intensity of river flooding
  • According to the analysis, three assets are directly exposed to river flooding, while another eleven are located in flood-prone areas.
  • In both scenarios, an increase in the intensity of river flooding is expected, but the increase is more significant for 2030.
 Risk rating 2030 High 2050 Moderate
Implications Rise in sea level and coastal flooding
  • None of the 53 strategic assets included in the analysis were directly exposed to coastal flooding.
  • However, an increase in sea level is projected on both Mexican coasts, which could cause damage to urban infrastructure in coastal cities, as well as disruptions in the distribution chain.
 Risk rating 2030 Low 2050 Low
Implications Increase in the frequency, intensity, and duration of droughts
  • In both scenarios, precipitation is estimated to decrease by up to 10% in most parts of the country. However, there will be regions where the decline could be greater.
  • Additionally, most of the country is expected to become drier with more frequent droughts, leading to an increase in water demand, especially in the northern part of the country and urban areas.
 Risk rating 2030 Moderate 2050 High

Implications Risk rating
2030 2050
Transition risks and opportunities Implications General climate policies that could raises prices and production costs within the supply/value chain
  • Under a BAU scenario, a moderate rise in the carbon price is expected, among existing mechanisms for most countries where EPL’s main international suppliers are located. At the same time, a lack of government incentives for production of biofuels could make prices highly volatile and press economic viability, which would present challenges for reducing emission in the cargo industry. Most countries are also expected to apply minimal energy efficiency standards for buildings.
  • In the below-2°C scenario, the carbon price would rise significantly, above all in the long term, both in advanced and emerging economies. Additionally, new industries are expected to be included in current price-fixing mechanisms. In the cargo industry, energetic political action could drive worldwide demand for biofuels, encouraging their production and reducing their costs, as the capital cost of electrical vehicles for transporting merchandise declines. Some countries may try to apply construction codes and modernization requirements for zero-energy buildings.
Risk rating 2030 Moderate 2050 High
Implications Policies to promote a circular economy
  • In a BAU scenario, circular economy policies are expected to focus on recycling of aluminum, steel, paper and plastic. In the medium term, most countries ae also expected to adopt policies banning single-use plastics, including Mexico.
  • Under a below-2°C scenario, an increasing number of countries are expected to introduce recyclability targets or discourage production of plastic waste through a plastic tax. The levying of a plastic tax by weight could have a significant impact on EPL, but at present almost 40% of its containers include some percentage of plastic. Furthermore, circular economy policies are expected to be stricter because of the need to reduce demand for the petroleum that goes into plastic.
 Risk rating 2030 Moderate 2050 High
Implications Technological advances focused on a more efficient system for transporting and distributing merchandise, low in carbon and non-polluting
  • For Mexico, under a BAU scenario, growing incentives are expected for the use of hybrid and electric vehicles, as well as increased government support for electromobility. However, given the low economic viability of existing technologies (hydrogen, for example), decarbonization of merchandise transportation remains a challenge. This limited technological progress is expected to increase sales of electric vehicles in the medium and long term.
  • Under a below-2°C scenario, more countries are expected to create regulatory frameworks that promote the adoption of electric vehicles through incentives and pilot electromobility programs. It is also likely that governments will set net-zero targets for the transportation industry, particularly for cargo. In Mexico there is little clarity on what targets might be set for this industry. Capex investment in electric vehicles would decline significantly under this scenario. Hydrogen would be another viable technology that may be adopted for merchandise transport. In the long term, sales of electric vehicles for cargo are expected to rise significantly.
 Risk rating 2030 Moderate 2050 High
Implications Introduction and expansion of carbon price fixing mechanisms, like carbon taxes and cap-and-trade systems
By 2030:
  • Under a BAU scenario, no significant change is expected in the carbon price in Mexico, although there is some uncertainty over the price and free assignment of emission rights in the framework of Mexico’s emissions trading system (ETS) once the current pilot phase is ended. The carbon tax is expected to continue rising at the federal level, along with an extension of subnational carbon-price-fixing instruments to new states.
  • Under a below-2°C scenario, neither are there expected to be significant changes by 2030, but there is a greater likelihood that current instruments will be extended to other industries, and instruments created in new states. In the medium term, it is highly likely that an emission trading system will begin functioning in Mexico. In the long term, the carbon price is expected to increase significantly in most countries, including Mexico.
 Risk rating 2030 Low 2050 Moderate
Implications Use of technologies to improve energy efficiency and resource consumption in sustainable buildings
  • Under a BAU scenario, current voluntary instruments and programs (the Sustainable Building Certification Program, for example), which offer reduced tax payments, financing for energy-saving programs, and insurance premium reductions, are expected to be expanded by 2030. Requirements on the installation of low-emission equipment, or retrofitting measures to reduce energy consumption in commercial buildings, are expected to increase.
  • Under a below-2°C scenario, attention would shift to the development of zero-emission buildings, which would be promoted by the adoption and application of energy codes for construction. Furthermore, under this scenario, considerable progress is expected in energy-efficient equipment (air conditioning, for example), the use of renewable energy, and reduction in capex invested in modernizing existing buildings.
 Risk rating 2030 High 2050 Moderate

Many countries have set ambitious climate targets for 2030 and some have set net-zero targets for 2050