Managing climate-related risks and opportunities

The assessment and management of climate-related risks and opportunities are key elements of our Climate Transition Plan. The plan sets greenhouse gas (GHG) reduction targets and lays out our decarbonisation strategy, supported by a number of initiatives by our Companies in their own operations and, through close collaboration with suppliers, also in their supply chains. In May 2024, the Science Based Targets initiative (SBTi) validated our proposed GHG reduction targets, reflecting our commitment to fighting climate change.

The growing challenge that climate change poses to society and businesses, and the complexity of assessing the associated financial risks and opportunities, led to the adoption in 2020 of the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), now integrated into the standards of the International Sustainability Standards Board (ISSB), managed by the International Financial Reporting Standards (IFRS). In 2024, the updated assessment of our climate-related risks and opportunities took into account the latest data published by the Intergovernmental Panel on Climate Change (IPCC), in accordance with the requirements of the Corporate Sustainability Reporting Directive (CSRD).

The short-, medium- and long-term assessment of climate-related risks and opportunities is part of an ongoing process that covers the value chain of the Group’s Companies with a turnover of more than 100 million euros (accounting for 99.95% of total turnover) and involves Private Brand and perishables suppliers. This assessment is carried out to enhance supply chain resilience, reduce carbon emissions, and identify potential business opportunities in primary production and in the use of low carbon technologies.

In 2024, the goals of the assessment and management of risks and opportunities included:

• updating the modelling of climate risk scenarios used;
• increasing knowledge of the supply chain’s carbon footprint by involving the Companies’ main suppliers, enabling the sharing of information and the identification of opportunities to reduce GHG emissions;
• improving the assessment of specific risks for some ingredients, in particular fruit and vegetables, and the use of water resources on Jerónimo Martins Agro-Alimentar (JMA) agricultural and livestock farms.

Governance

Our decarbonisation strategy and management of climate-related risks and opportunities is monitored and supported by the Board of Directors, ensuring that climate-related topics are integrated into the corporate strategy, in particular the sustainability strategy, both in our own operations and in the supply chain. Executive responsibility rests with the Group’s CEO, who is also Chairman of the Board and of the Committee on Corporate Governance and Corporate Responsibility (CGSRC). More information about these bodies is provided in points 21. and 29. of Chapter “Corporate Governance”.

Topics linked to climate-related risks and opportunities are discussed in regular meetings held by the Sustainability Committees of each of our Companies and by the CGSRC, which assists the Board of Directors in assessing and submitting proposals on the corporate responsibility strategy. Climate change mitigation and adaptation and the GHG emission reduction targets set out in the Climate Transition Plan are included in these proposals.

The Board of Directors also defines the Group’s risk management policy and objectives. Climate-related risks, incorporated into the environmental risks of our risk management nomenclature, are integrated into the Group’s multidisciplinary management process. A detailed description of our risk management mechanisms, including environmental risks, is provided in points 52, 53. and 54. of Chapter “Corporate Governance”.

The approval in 2023 of net zero emissions targets and of short- and long-term reduction targets, together with the decision to allocate an estimated annual average of 10% of total consolidated CapEx to the implementation of those targets are just two recent examples of climate integration in the Group’s governance mechanisms.

Climate-related issues are central to our corporate responsibility strategy and are integrated into our business strategy. The implementation of our climate commitments is underpinned by ongoing investments, with execution cycles aligned with the business plan, including:

• the installation of photovoltaic systems for self-consumption of renewable electricity in Poland, Portugal and Colombia;
• the use of natural refrigerant gases in cooling and freezing units and equipment;
• the purchase of certified renewable electricity to power our operations in Portugal and Poland (OpEx).

The achievement of climate-related and other corporate responsibility objectives is part of the incentive scheme for employees in roles that influence the definition and/or implementation of the Company’s climate commitments and targets. The ways in which we integrate sustainability-related performance into the employee incentive schemes are detailed in “Governance and strategy”.

Our strategy

As a food retailer with operations in the agri-food sector, we depend substantially on favourable climate conditions throughout our value chain, particularly in the natural cycles of primary production, which also depend on ecosystem services. Weather conditions can have an impact on our food and non-food supply chain, in what regards, for instance, the availability of water for agriculture, constrains in logistic processes caused by delays and blockages in transport routes related with landslides, and also on the risk of flooding of stores and distribution centres.

We recognise the impact of our direct business activities and of those developed in our supply chains on GHG emissions, which contribute to climate change. Our mitigation and adaptation strategy on climate change aims to reduce physical and transition risks by sustainably reducing GHG emissions in our own operations and in our supply chain, which we do by involving suppliers in our decarbonisation roadmap. This close collaboration has allowed us to integrate into our assessment the mitigation and adaptation actions already implemented by our suppliers for ingredients with a high climate risk.

In line with a GHG reduction trend that limits the rise in average temperature to 1.5°C, our plan includes intervention measures in own operations (distribution centres, stores, industrial units and farms – all of which are also referred in this report as establishments), in logistics, in sourcing – together with our suppliers (especially of food products) –, and for consumers. We also monitor the possible availability of alternative products with lower carbon emissions.

Progress made on these actions, as well as the other GHG reduction targets, is detailed in “Sustainability Commitments”.

Alongside our commitment to reduce scope 1 emissions (from own operations) and scope 2 emissions (from the energy we buy), we are also committed to reducing emissions associated with upstream and downstream activities (scope 3). For many organisations, including us, the biggest source of GHG emissions is associated with the production, use and end-of-life of products sold in stores. For a food retailer, emissions from purchased goods are influenced by industrial production practices and the agricultural practices associated with food sold as final products (e.g. vegetables) or incorporated as ingredients in Private Brand products (e.g. soy in vegetable oils). That is why we have implemented various initiatives to reduce the emissions associated with these practices, in particular those associated with changes in land use, such as deforestation related to the conversion of areas for agricultural production. Initiatives of note in our supply chain include:

• public commitments to ensure that we are not associated with deforestation or the conversion of high conservation value ecosystems linked to the production of some of the main commodities (palm oil, soy, paper/wood and beef);
• supporting our fruit and vegetable suppliers in adopting sustainable agricultural practices;
• promoting sustainable energy use;
• optimising distribution routes and increased investment in more efficient transport solutions;
• fighting and reducing food waste;
• promoting the ecodesign of packaging;
• fighting plastic pollution.

Given the inevitability of some climate change effects, we strive to improve business resilience by promoting adaptation measures in our own operations and in the supply chain. We do this by sharing good practices and identifying alternative origins or products.

Risk assessment also allows us to identify opportunities in our own operations to reduce our carbon footprint and increase our energy production capacity (such as the generation of renewable energy for self-consumption), or develop innovative low carbon products that meet the expectations and needs of our consumers.

Managing climate-related risks and opportunities

Despite the high degree of uncertainty associated with assessing the impact of climate risks, the process is similar to that implemented for managing other risks and is based on our general risk management framework, which includes risks and opportunities in all stages of our value chain:

• upstream (e.g. the impact of changing precipitation patterns on global food supply chains);
• own operations (e.g. the impact on CapEx of replacing cooling systems);
• downstream (e.g. the opportunity to increase investor confidence through optimised management of climate-related financial risks and opportunities or the reduction of GHG emissions in our value chain).

The identification, assessment and management of climate-related risks and opportunities is part of an integrated corporate risk management process, in line with ISO 31000, and includes a Risk Exposure Matrix with four levels calculated on the basis of two dimensions: probability and impact, for which we use four metrics (sales, EBITDA, safety and reputation) according to the type of risk or opportunity.

Risks and opportunities are considered material when exceed a potential variation of 5% in sales (set as the materiality threshold) considering its inherent risk¹. These cases are identified, assessed and managed at corporate level. Where they fall below that threshold (up to 5% of sales) they are identified and assessed at corporate level and managed at Company level.

Identification includes monitoring country-specific regulations (e.g. carbon taxes in Portugal, Poland and Colombia), a detailed assessment of the vulnerability of facilities to extreme weather events (e.g. flood risk mapping of stores and distribution centres in the countries where we have operations) and an analysis of market trends, in particular our consumers’ preferences (e.g. preference for local products, choice of low carbon or flexitarian products).

More information about these measures is provided in points 52, 53 and 54 of Chapter “Corporate Governance”.

Climate-related financial risks and opportunities were assessed over different time horizons – short, medium and long term – and selected according to their materiality. There are two types of climate-related financial risks:

• physical (acute and chronic);
• transition (including political, regulatory, market, technological and reputational risks).

The universe of climate-related risks, as well as the quantification and disclosure of financial risks and opportunities, are being updated to incorporate the latest information from climate projection models.

Climate-related risks are identified based on quantitative scenarios using projections from the Intergovernmental Panel on Climate Change (IPCC), the International Energy Agency (IEA) and other databases (e.g. FAO – Food and Agriculture Organisation of the United Nations). This information allows us to assess the dependence of our Companies’ sales on products containing climate-vulnerable ingredients.

In 2020, we considered the four main stages of the value chain (primary production, processing, logistics and our establishments) and selected the 30 most relevant product groups for the Companies, together with its main ingredients and its origins, totalling 45 ingredients and 24 origins. This selection involved analysing more than 40 items to obtain a representative sample of the Group’s products, countries of origin and locations where we operate. Climate-related risks and opportunities were identified and assessed for each ingredient and main origin.

In 2024 we revisited the selected products and increased the number of items subject to assessment of climate-related financial risks and opportunities to 50.

The assessment of the different categories of physical and transition risks has been updated for the short-term, 2030, medium-term, 2040, and long-term, 2050 time horizons, in line with our climate transition plan and according to the latest models in the Sixth IPCC Report, which combine climate (Representative Concentration Pathways ) and socio-economic (Socio-economic Pathways) scenarios:

• SSP1-1.9 (<1.5°C), “sustainable pathway”, considers a growth scenario focused on sustainability with rapid emission reductions to limit average temperature increase to 1.5°C, in line with the goals of the Paris Agreement;
• SSP2-4.5 (2-3°C), “middle-of-the-road”, assumes socio-economic factors follow their historic trends and a rise in average temperature below 2.0°C in an intensive mitigation scenario;
• SSP5-8.5 (>4°C), “fossil fuel-rich development”, projects rapid and unsustainable growth in the economy and energy use and a rise in average temperature of between 4.0°C and 6.1°C, assuming that efforts to limit the rise in average temperature fail.

Since 2020, all climate-related physical and transition opportunities and risks that are considered material have been assessed annually.

Identifying risks and opportunities

In 2024, the assessment of risks and opportunities in our operations covered more than 6,000 establishments (stores, distribution centres, head office buildings, central kitchens and industrial units) in the six countries where we do business (Poland, Portugal, Colombia, Morocco, Czechia and Slovakia). It focused on the most frequent physical risks in our operations and on boosting opportunities related to the energy transition and the use of natural or low GWP refrigerant gases.

Given the growing pressure on water resources, we reassessed the level of water stress associated with the location of our Companies’ establishments, in particular JMA farms. Our agri-food production area relies heavily on water resources, namely for animal watering and irrigation. We used the latest version (2023) of the Aqueduct Water Atlas, a World Resources Institute tool that aggregates information on current and projected water scarcity for different time horizons, according to different climate scenarios. Locations classified as being of “high” or “extremely high” risk were deemed material.

JMA drew up a Water Management Plan following this reassessment. This plan fulfils the commitment to define and implement a mitigation and adaptation plan to improve efficiency in water use and manage water scarcity during periods of low precipitation at the Company’s farms. The plan also establishes the main actions for monitoring and managing water efficiency, and sets targets for reducing consumption and controlling water quality, in a continuous improvement effort which includes public disclosure of the progress made.

In order to reduce the impact on water resources without jeopardising production, JMA has implemented several mitigation measures, including:

• rainwater harvesting for cooling, washing and irrigating outdoor spaces;
• using pond water for animal watering;
• drip irrigation systems;
• nighttime irrigation.

Detailed information about the exposure of own operations to these risks is provided in “Water consumption”.

Assessment for the 2030 and 2040 periods showed that the risk associated with rising sea levels or inland flooding does not have a material impact for the business. The coastal and river flood risk climate models offered by the WWF Water Risk Filter tool were used for this assessment.

Having regard to the long-term projections, which indicate a rise in sea levels of between 0.5 and 1 metre by 2100, the impact of this risk on coastal areas will continue to be monitored periodically in order to identify high-risk areas for our Companies’ businesses. Quantifying the flood risk in periods of heavy rainfall is complex due to the uncertainty of the results of climate scenarios. Despite the increase in flood frequency and intensity, the number of stores affected in recent years has been very small. Our establishments have drainage systems and levels of adaptation to the occurrence of floods, especially those caused by heavy rainfall. One such mitigation measure is the construction of distribution centres in Colombia above the average sea level rise line and with a slope to harvest surface runoff, which is then used for secondary activities such as washing floors and watering green spaces.

We monitor the impact of potential sea level rises on our logistics processes by studying the risk associated with the seaports used by the freight carriers we use in the different countries.

We also monitor the state of implementation of national climate action and adaptation plans, especially in Colombia, where there are port infrastructures in higher risk regions, as well as the plans of several countries for strategic ports in regions where we have identified new products or alternative products to those at risk in their production regions.

Although the risk identified in our infrastructures does not have a material impact, we closely monitored the occurrence and magnitude of recent extreme events, such as the September 2024 floods in southern Poland and the major wildfires in central and northern Portugal, also in September 2024.

As regards the energy transition in the countries in which we operate, risks and opportunities have already been identified:

• despite efforts in recent years to increase energy generation from renewable sources, Poland is still dependent on fossil fuels, particularly coal, for electricity and heat production;
• in Portugal, the high penetration of renewable energy guarantees a reduced carbon footprint in electricity generation;
• Colombia has low GHG emissions due to greater hydroelectric power generation.

The year 2024, however, was marked by the effects of El Niño, and periods of water scarcity that affected river flows and limited water availability for people. In the case of Colombia, lower hydroelectric power production led to an increase in electricity generation from non-renewable sources and a consequent rise in energy costs, likely resulting in higher carbon intensity of the country’s power grid.

The limited availability of centralised refrigeration systems with low GWP refrigerant gases in Colombia, due to the lack of installation and maintenance services, constitutes a technological risk.

Reputational risk management is directly linked to stakeholder’s expectations on our commitments to reducing our carbon footprint, fighting deforestation and supporting biodiversity preservation and conservation projects. Our actions on these issues are described throughout this subchapter. Detailed information on the progress made towards the objectives we set for these topics is provided in “Sustainability Commitments”.

Reflecting the path we have been following, in 2024 we were once again recognized by CDP with the highest possible score (‘A’) in the “Climate Change” programme and obtained the leadership level (‘A-’) in both “Water Security” and “Forests” programmes, the latter referring to management of the commodities most associated with deforestation: palm oil, beef, soy and paper/wood.

Collaboration with suppliers

Between 2021 and 2024, more than 230 Biedronka, Pingo Doce, Recheio and Ara perishables and Private Brand suppliers collaborated with our assessment, resulting in the identification of different climate adaptation and mitigation measures to reduce GHG emissions. By evaluating the climate resilience of our supply chain, we identified a growing concern on specific risks such as extreme temperatures and water availability, which have forced suppliers to adapt their activities in order to maintain production levels and product quality.

Our suppliers are implementing strategic changes to safeguard against potential climate-related risks, including:

• diversification of the origins of some ingredients (e.g. bananas, cocoa and rice), as a result of the migration of production to regions with more favourable climate conditions;
• investment in more resistant varieties of raw materials, while maintaining their origin;
• development of added-value products that are easier to preserve (e.g. jams or dehydrated products).

Moreover, the impacts of extreme events such as those that occurred in Valencia in October 2024 are monitored by the food safety and quality departments, which assess any indirect risks, such as the proliferation of pathogens (e.g. E-coli) in food products.

Sharing knowledge and cooperating with our Private Brand and perishables suppliers builds more resilient supply chains, giving rise to new business opportunities. One example of this collaboration is our sustainable agriculture programme, through which we work closely with suppliers and producers, sharing good practices and helping to assess the level of sustainability of their farms in three main components: environment, agricultural techniques and economy.

Our Sustainable Agriculture Handbook has enabled us to assess the degree to which our suppliers’ farms are aligned with climate-related risks and the implementation of mitigation measures relating to water scarcity, extreme cold and the energy transition. For more information about this initiative see “Supplier awareness and training”.

With increasingly more extreme weather events with greater impact on their farms, our suppliers have been investing in solutions to protect against physical risks (e.g. periods of drought) and transition risks (e.g. investment in renewable energies), including:

• installing closed-loop water systems;
• using alternative water sources, such as rainwater harvesting;
• adapting to temperature variations by investing in greenhouses and crop protectors;
• investing in photovoltaic panels, alternative fuels (e.g. biodiesel), in using waste heat for greenhouses and installing LED lighting.

With regard to agricultural and livestock production, we have been monitoring the challenges that periods of drought and changes in rainy seasons pose for production in southern Europe, particularly in the Iberian Peninsula. Despite the greater frequency and duration of these weather events, there has been a widespread adoption of efficient water management measures by our suppliers, including the production of drought-tolerant crops, the use of food by-products in animal feed, and investment in water storage systems, monitoring systems and efficient irrigation systems. We believe that our influence in sharing good practices must be reflected in our activities, which is why we have drawn up a Water Management Plan for JMA’s agricultural and industrial activities, which, due to the nature of its activities, use much more water than our distribution activities. JMA’s Water Management Plan establishes water efficiency measures to increase business resilience during periods of severe drought.

With regard to opportunities relating to the energy transition, prompted also by the increasingly demanding environmental regulations on our activity, over the past decade we have invested continuously in:

• purchasing energy from renewable sources and of renewable energy certificates in Portugal and Poland;
• installing photovoltaic energy production systems in stores and distribution centres in all the countries where we have operations;
• using energy recovery systems in industrial units and stores that are refurbished to reduce their energy consumption and emissions associated with refrigerant leaks from cooling and refrigeration equipment, including replacing refrigerant gases with natural or low GWP refrigerant gases.

The main mitigation measures implemented in our operations are described throughout this subchapter. We also report in detail and publicly disclose our climate-related risks and opportunities in our responses to CDP (Disclosure Insight Action).

With regard to business opportunities in our supply chain, we continue to witness and stimulate the investment of our suppliers in the production of renewable energy for self-consumption, in particular for energy-intensive processes (e.g. the processing of raw materials such as coffee bean roasting or sugar refining), and in the production of raw materials, most notably the growing use of low carbon fuels in agricultural machinery and the recovery of waste for the production of these fuels. These investments in low carbon technologies are essential to reducing the indirect emissions associated with our purchases of goods and services.

As for production, investing in new varieties and in climate-resistant crops, as well as diversifying countries of origin are some of the opportunities identified by producers (see table below).

As a food retailer, we have a very diverse product portfolio and a mature and efficient logistics network, ensuring the supply of similar or alternative products in our stores in the event of temporary supply shortages. Increasing the production of certain foodstuffs in regions where climate change has led to productivity gains and the development of innovative and alternative products are the main opportunities that the Companies have been exploring in recent years. One example is the increase in fruit and vegetable production in Poland, where winters have been less severe.

Progress

In 2025, we will continue working on assessing climate-related financial risks and opportunities and strengthening collaboration with the supply chain to:

• increase knowledge about some emerging climate-related risks, such as the impact of extreme weather events on our stores and logistics operations;
• consider a greater variety of ingredients in the identification and assessment of risks and opportunities in order to cover more of our Companies’ Private Brand and perishable products in the different countries where we have operations;
• improve the calculation of inherent and residual financial risk by integrating the mitigation and adaptation measures identified in our supply chain;
• continue to assess the climate resilience of our supply chain and identify initiatives to transition to a low carbon economy;
• map and quantify business opportunities associated with the development of new products and identify alternative origins or potential increases in the production of certain crops in regions with favourable climate conditions.

¹ Inherent risk is the level of risk without considering response strategies to a given climate-related risk (physical or transition).