TCFD Reference Table
Knorr‑Bremse follows the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and amendments of established reporting standards relating to the publication of climate-related risks and opportunities. In the CDP Climate Change Request 2023, Knorr-Bremse reports key figures, risks, and opportunities as well as strategies for the management of climate-related issues. In addition, a cross-functional working group was set up in 2021 to develop measures for the implementation of the TCFD recommendations. The focus in this context was in particular on identifying relevant risks and opportunities across the value chain and integrating these topics into risk management. Taxonomy-related information was already added to the TCFD reference table in 2022. The following table describes the results in accordance with the TCFD recommendations.
Governance
UN Sustainable Development Goal (SDG) 13, Climate Action, is a high priority for Knorr-Bremse and is operationalized through the Knorr‑Bremse Climate Strategy 2030, which was approved by the Executive Board in 2019. The Executive Board monitors the implementation of the climate strategy and approves the extensive capital expenditure on it. Climate-related topics were on the agenda of the Executive Board on multiple occasions in 2023.
The Knorr-Bremse Supervisory Board exercises a monitoring function for the sustainability and climate strategies and their implementation. The focus of the Supervisory Board’s work in 2023 was on a critical assessment of the higher emission targets for Scopes 1 to 3. Another significant aspect was the incorporation of sustainability-related factors into the long-term Knorr-Bremse remuneration system (LTI) at a management level. In addition, the Supervisory Board conducts an in-depth review of the Knorr-Bremse risk report at least once a year and also on an ad-hoc basis if necessary.
The remuneration system for management levels 0 to 2 (Executive Board, senior management, regional managing directors, and heads of department), introduced in 2022, sets incentives for achieving our sustainability targets. The short-term remuneration (the “short-term incentive”), first implemented in fiscal year 2022 and continued in 2023, is 20% linked to the achievement of sustainability targets, including performance indicators in the context of the Climate Strategy. Aspects of sustainability were also implemented in the long-term variable remuneration (the “long-term incentive”) in 2023, with sustainability targets making up 20% of this remuneration as well.
The top level of management is systematically included in the management of risks and opportunites. A summary Group risk report is an important component of regular risk reporting. This is discussed and adopted in the Risk Committee. The participants in the Risk Committee are the heads of finance with regional responsibility, the heads of other governance functions, and the global quality managers. The Group risk report, after it has been prepared, is presented to the Knorr-Bremse Group’s Executive Board at quarterly intervals and explained and discussed at the relevant Executive Board meeting. The Sustainability department is responsible for the ongoing development and coordination of the Climate Strategy’s implementation and for the integration of climate-related risk and opportunity management into existing risk processes. The department reports directly to the CFO and ESG Board on a regular basis.
The ESG Board is the key body where the Knorr-Bremse sustainability and climate strategies are discussed and defined. It comprises two members of the Executive Board, a representative of the senior management from each of the two divisions and of the Knorr-Bremse North America/South America and Asia-Pacific regions, the Chair of Knorr-Bremse Global Care e. V., and the Head of the Sustainability department.
A cross-functional working group for the implementation of the TCFD recommendations was created in the fall of 2021. The working group consists of representatives of the Strategy, Risk Management, Procurement, Production, and Sustainability departments as well as representatives of the North America/ South America and Asia-Pacific regions. In particular, it dealt with a TCFD gap analysis and a qualitative scenario analysis.
Strategy
Knorr‑Bremse defines the time horizons short-term (0-1 year), medium-term (1-3 years), and long-term (3-5 years) in its planning. In addition, Knorr‑Bremse carried out an extensive, qualitative scenario analysis for the years 2030 and 2050 in the fall of 2021. The findings from the analysis complement the regular risk management approach.
The analysis focused on climate-related risks and opportunities across the upstream and downstream value chain based on the following two scenarios:
The Net Zero Emissions by 2050 Scenario (NZE) from the International Energy Agency was chosen mainly to incorporate the transition risks resulting from a 1.5°C global temperature increase. The RCP 6.0 scenario from the Intergovernmental Panel on Climate Change (IPCC) was chosen mainly to incorporate the physical risks resulting from a 2.7°C global temperature increase. Knorr‑Bremse’s choice of scenarios therefore corresponds to the current and expected external requirements of the TCFD and Corporate Sustainability Reporting Directive (CSRD). In addition, the transition risk scenario corresponds with Knorr-Bremse’s ambition of helping to limit the global temperature increase to 1.5°C through its Climate Strategy. The analysis differentiates between the Rail Vehicle Systems division and the Commercial Vehicle Systems division. It focuses on material business activities in the supply chain, in in-house production, and in sales markets in order to identify risks and opportunities that arise from the scenarios and have the potential to cause significant financial impacts on Knorr-Bremse.
The following tables summarize the relevant types of identified risks and opportunities as well as their financial impacts on Knorr-Bremse.
Relevant types of climate-related risks and opportunities for the Knorr-Bremse Rail Vehicle Systems and Commercial Vehicle Systems divisions
Potential financial impacts for the Knorr-Bremse Rail Vehicle Systems and Commercial Vehicle Systems divisions
Risks
Relevant types of climate-related risks and opportunities for the Knorr-Bremse Rail Vehicle Systems and Commercial Vehicle Systems divisions
Supply chain: regulatory, technological, and market risks (Rail Vehicle Systems and Commercial Vehicle Systems divisions)
It is expected that the prices of energy-intensive materials such as steel and aluminum will rise by 2030 due to prices on CO2e and greater costs for low-carbon technology production (e.g., “green steel” production with electric arc furnaces/direct reduction using hydrogen).
In the long term, by 2050, the significance of this development will subside due to the ongoing technological progress in material production. The procurement of critical resources, particularly in connection with the decarbonization of the global economy (e.g., copper in electrical devices), may result in goods shortages and influence market prices.
Potential financial impacts for the Knorr-Bremse Rail Vehicle Systems and Commercial Vehicle Systems divisions
Regulatory, technological, and market risks may potentially have negative impacts on the EBITDA (earnings before income taxes) margin due to rising procurement costs.
Relevant types of climate-related risks and opportunities for the Knorr-Bremse Rail Vehicle Systems and Commercial Vehicle Systems divisions
In-house production: regulatory, technological, and market risks (Rail Vehicle Systems and Commercial Vehicle Systems divisions)
It is assumed that the strongly increasing prices on CO2e from fossil fuels as well as the shift toward low-carbon forms of transportation will result in the procurement of energy and logistics services becoming more expensive. This effect will already be recognizable in 2030 and will increase further by 2050.
Potential financial impacts for the Knorr-Bremse Rail Vehicle Systems and Commercial Vehicle Systems divisions
Regulatory, technological, and market risks may potentially have negative impacts on the EBITDA margin due to rising costs in in-house production.
Relevant types of climate-related risks and opportunities for the Knorr-Bremse Rail Vehicle Systems and Commercial Vehicle Systems divisions
Sales market risks (Commercial Vehicle Systems division)
In a 1.5 degree scenario, measures for decarbonizing the economy dampen the expected growth in the customer-driven truck business when compared to a “business as usual” scenario. Such measures include the avoidance of transportation and a shift to low-carbon forms of transportation. Looking at 2050 in particular, this risk will materialize more strongly when compared with a moderate risk manifestation in 2030.
Potential financial impacts for the Knorr-Bremse Rail Vehicle Systems and Commercial Vehicle Systems divisions
Market risks for the Commercial Vehicle Systems division may have negative impacts on revenues.
Opportunities
Relevant types of climate-related risks and opportunities for the Knorr-Bremse Rail Vehicle Systems and Commercial Vehicle Systems divisions
Sales market risks (Commercial Vehicle Systems division)
Regardless of the scenario, the growth of GDP and population size represents an opportunity for higher demand. However, in a 1.5°C scenario, the measures for decarbonizing the economy, such as avoiding transportation and a shift toward low-carbon forms of transportation, result in stronger growth of the rail market when compared with a “business as usual” scenario. These market opportunities will already be large in 2030 and will remain at a high level in the years through to 2050.
Potential financial impacts for the Knorr-Bremse Rail Vehicle Systems and Commercial Vehicle Systems divisions
New market opportunities may increase revenues in the Rail Vehicle Systems division.
Relevant types of climate-related risks and opportunities for the Knorr-Bremse Rail Vehicle Systems and Commercial Vehicle Systems divisions
Potential financial impacts for the Knorr-Bremse Rail Vehicle Systems and Commercial Vehicle Systems divisions
Risks
Generally speaking, the physical risks in a 2.7 degree scenario intensify over time, with the result that the physical risks in 2050 escalate when compared to 2030. Nevertheless, the risk’s severity and frequency can vary locally.
Relevant types of climate-related risks and opportunities for the Knorr-Bremse Rail Vehicle Systems and Commercial Vehicle Systems divisions
Supply chain: acute risks (Rail Vehicle Systems and Commercial Vehicle Systems divisions)
The acute physical risks from extreme weather events such as floods, tropical cyclones, and droughts are the most relevant risks for Knorr‑Bremse. The increased likelihood of drought represents a risk for the production of key raw materials, especially in Germany and the US. The increased likelihood of floods and tropical cyclones (India, China, Japan, and the US) poses a risk of operational downtime if local suppliers are affected.
Potential financial impacts for the Knorr-Bremse Rail Vehicle Systems and Commercial Vehicle Systems divisions
Acute physical risks that affect local suppliers may have negative impacts on the EBITDA margin due to rising production costs.
Relevant types of climate-related risks and opportunities for the Knorr-Bremse Rail Vehicle Systems and Commercial Vehicle Systems divisions
In-house production: acute risks (Rail Vehicle Systems and Commercial Vehicle Systems divisions)
The material physical risks in relation to Knorr-Bremse’s production sites are floods (China, India, Japan, and Germany) and tropical cyclones (China, US, and Mexico), which may result in damage to assets and in business interruptions, e.g., from production downtime or blackouts.
Potential financial impacts for the Knorr-Bremse Rail Vehicle Systems and Commercial Vehicle Systems divisions
Acute physical risks may result in damage to production sites and, consequently, production downtime. Increasing operating and capital expenditure have an impact on the EBITDA margin and may cause lost income.
Relevant types of climate-related risks and opportunities for the Knorr-Bremse Rail Vehicle Systems and Commercial Vehicle Systems divisions
Sales markets: acute risks (Rail Vehicle Systems and Commercial Vehicle Systems divisions)
Floods and tropical cyclones may cause significant damage to rail networks, which in turn can result in operational downtime and a risk to the demand for products from the Rail Vehicle Systems division. The Commercial Vehicle Systems division is also affected by acute risks such as floods and tropical cyclones, however to a lesser extent.
Potential financial impacts for the Knorr-Bremse Rail Vehicle Systems and Commercial Vehicle Systems divisions
Because rail infrastructure is subject to a particular risk of extreme weather events, the revenues of the Rail Vehicle Systems division may be negatively affected.
Opportunities
Relevant types of climate-related risks and opportunities for the Knorr-Bremse Rail Vehicle Systems and Commercial Vehicle Systems divisions
Sales markets: acute risks (Commercial Vehicle Systems division)
Drought may represent a climate-related opportunity for the Commercial Vehicle Systems division as inland shipping would be replaced by truck-based transportation in this case.
Potential financial impacts for the Knorr-Bremse Rail Vehicle Systems and Commercial Vehicle Systems divisions
During temporary droughts, truck-based transportation in place of ships on inland waterways may boost the revenues of the Commercial Vehicle Systems division.
In keeping with the “Do No Significant Harm” requirements of the EU Taxonomy Regulation, a climate risk and vulnerability analysis was carried out to ensure that material climate risks can be counteracted in good time. The scope of this analysis included 167 Knorr‑Bremse production and administration sites which are associated with taxonomy-relevant activities and were therefore examined corresponding to relevant acute and chronic risks. The basis for the measurement included various recognized sources of data as well as the IPCC SSP5 8.5 climate scenario (which forecasts the rise in average annual temperature at the end of the century at approximately 4.4°C) to take account of the most significant impacts of climate risks in accordance with the precautionary principle. No significant physical climate risks were identified for the production and administration locations after considering the location-specific vulnerability and studying the countermeasures already implemented. To ensure that the economic activities are not negatively impacted by secondary or cascading impacts, a climate risk assessment of the most material direct suppliers was carried out as well. If there was potential risk exposure, the affected suppliers were informed and asked about adaptation solutions.
Knorr‑Bremse sees its Climate Strategy as an essential contribution to the limiting of transition risk. The strategy was adopted in 2019 and updated and expanded in 2023. The climate targets included in it have been validated by the Science Based Target initiative (SBTi). The goal is to reduce global production-related CO2e emissions (Scopes 1 and 2) by 75% from their 2018 baseline level by 2030. The transformation plan is supported by three levers: CO2e efficiency and energy efficiency, self-generation of renewable energy, and external purchasing of renewable energies. Furthermore, the absolute Scope 3 CO2e emissions from purchased goods and services, upstream transportation and distribution, and the use of sold products are planned to be lowered by 25% from the 2021 baseline level by 2030.
Risk Management
The climate-related risks and opportunities identified based on the climate scenarios have been added to the Knorr-Bremse risk report.
Key Figures and Targets
Knorr-Bremse has published initial estimates of examples of potential financial impacts as part of its 2023 CDP climate reporting.
The main key figure for managing the decarbonization of Knorr-Bremse is CO2e emissions. Knorr-Bremse accounts for emissions using the scopes under the Greenhouse Gas Protocol Standard.
The CO2e balance of Knorr-Bremse was as follows in 2023:
- Scope 1: ~ 36,000 metric tons of CO2e
- Scope 2: ~ 11,000 metric tons of CO2e (market-based accounting) and ~117,000 metric tons of CO2e (location-based accounting)
- Scope 3: ~ 42,100,000 metric tons of CO2e
The Scope 3 emissions include Scope 3.1 Purchased Goods and Services, Scope 3.4 Upstream Transportation and Distribution, Scope 3.9 Downstream Transportation and Distribution, and Scope 3.11 Use of Sold Products, which are categories relevant to Knorr-Bremse, as well as Scope 3.3 Fuel- and Energy-Related Activities, Scope 3.6 Business Travel, and Scope 3.7 Employee Commuting.
In keeping with the latest climate research into a limitation of global warming to no more than 1.5°C, Knorr-Bremse has set a target of reducing the absolute CO2e emissions of its locations globally and of its vehicle fleet (Scopes 1 and 2) by 75% by 2030. Knorr-Bremse had achieved a reduction of approximately 70% by 2023, mainly by purchasing electricity from renewable sources of energy and by increasing energy efficiency.
Moreover, Knorr‑Bremse expanded its climate targets to the value chain in early 2023. They provide for a 25% reduction of the emissions associated with the business activities of the upstream and downstream value chain (Scope 3) by 2030, compared to the 2021 baseline level. The emissions focused on for this are the ones in the Scope 3 categories 3.1 Purchased Goods and Services, 3.4 Upstream Transportation and Distribution, and 3.11 Use of Sold Products.