Xundian_3 (COD Jan 2016)

Trends And Drivers

Global trends will inevitably influence us directly or indirectly. We proactively monitor these trends and seek to identify emerging business-specific risks and opportunities.
Trends&Drivers

Drivers

 

Climate change, technological breakthrough and demographic and social change continue to be profound forces that are significantly changing our operating environment. We have studied these trends to understand how they will impact us, what potential business-specific or emerging risks they pose; and how we can seize the opportunities they present as guided by our values and commitments.

Since the markets in which we operate are diverse, our risk management system aggregates the local-specific risks and opportunities monitored across all business units and overlays that with regular emerging risk maps to help us: anticipate our Group level risk exposure; put controls in place to counter threats; and to effectively pursue the set objectives.

However, the way emerging global trends impact on business is often gradual, taking a longer period to unfold, and often in uncertain ways. Conventional risk management tends to include shorter time horizons and may not be able to capture the potential strategic risks or opportunities arising from these global trends effectively. In 2017, we commenced a pilot project to explore how to further integrate our knowledge of the global trends with the process of emerging strategic risks and opportunities identification. The Draft Guidance for applying Enterprise Risk Management (ERM) to Environmental, Social and Governance (ESG)-related risks developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and the World Business Council for Sustainable Development (WBCSD), referred to our pilot as an example supporting one of the steps on understanding business context and strategy. We will continue to work on integrating ESG-related emerging risks into our risk management system and will report on our progress in 2018.

Navigate the panels below to find out more on the global trends affecting us and the potential business risks and opportunities they bring. They are also discussed in different sections throughout this Report.

Global Trends


Climate change

We were encouraged to see the Paris Agreement ratified, as the committed Nationally Determined Contributions (NDCs) provide medium- to long-term signals conducive to attracting the longer‐term investments needed for infrastructure.

However, the power industry alone cannot meet the agreed climate change mitigation targets. We need governments, communities and businesses to work together to put in place: (1) regulatory structures that facilitate the transition to a cleaner energy mix; (2) appropriate financing mechanisms; and (3) conventional and renewable energy sources that are reliable and affordable.

While the power industry is ready to do its part, we must be cognisant of the different needs in different parts of the world. In developing economies, where energy demand is still growing, fossil fuels will remain a key energy source for some time. Meanwhile in developed economies, where supply may outstrip demand, there is a more immediate opportunity to transition to a low carbon energy future. Hence, different countries will require different solutions at different times.

 
Risks Opportunities Actions Taken
  • Potential stranded fossil fuel assets
  • Abrupt policy changes that could affect supply security or reliability
  • Physical impacts of climate change on our assets and value chain
  • Potential carbon price increasing the operating costs for fossil fuel assets
  • Potential reputational risk from owning fossil fuel assets
  • Continue to expand our renewable energy portfolio, and deploy new ways to finance these projects
  • Use Power Purchase Agreements (PPAs) to sell renewables energy to customers directly
  • Invest in nuclear power with a credible and trusted partner
  • Offer a range of carbon reduction advisory services and implementation support to our customers
  • Provide resilience/adaptation services and expertise to stakeholders
  • Where fossil fuel assets are still needed to support development or low carbon transition, deliver assets with the highest efficiency and lowest emitting technologies as is commercially possible

  • On the supply side, use cleaner fuel and promote the use of renewable energy to lower the carbon emissions from our power generation; on the demand side, promote energy efficiency and conservation (EE&C) through green tools and education programmes.
  • We have reviewed our “Climate Vision 2050” and have set challenging but achievable energy transition targets and clean energy targets, which set a road map for our decarbonisation journey.
  • Our Climate Action Finance Framework launched in 2017 sets out a more holistic approach to financing the transition towards a low carbon energy future. It formalises and governs project evaluation, monitoring and reporting the use of proceeds for Climate Action Bond issuances.
  • Upgrade our facilities to strengthen our defence against extreme weather events. For instance, we are planning and implementing operations and system reinforcements where necessary. We also maintain emergency response and crisis management plans with regular drills. Looking forward, we plan to develop a model that can more accurately forecast the effect of an approaching typhoon on our network so that we can be better prepared.
  • Continue our active involvement with governments, businesses and communities to help formulate the policies and regulations required to facilitate this energy transition.

Technological breakthrough

Technology advancements influence not just the technical solutions available, but also the behaviour and expectations of customers and other stakeholders. They can also lead to major disruptions of traditional business models, which we are starting to see in utilities around the world.

Advancements in digital technology and its applications, and new entrants coming into our sector are bringing significant changes to our industry. We should no longer think of electricity as the only product we offer our customers. Customer expectations are evolving, which mean being customer-centric and capable of continually enhancing customer experience will become essential; in the future, our business will be about the services and the quality of these services that we provide along with our products to customers.

 
Risks Opportunities Actions Taken
  • Abrupt changes in customer and/or stakeholder behavior
  • Business model disruption
  • IT-related risks such as cyber security
  • Deploy new low carbon energy technologies to replace carbon intensive ones both on the supply side and demand side
  • Use of digital technology to increase the efficiency of our operations
  • Use digital technology and data analytics to develop new value-added services for bundling with the energy we provide
  • Repositioning our role in the value chain as a way to transition into a new business model that suits the country or markets we are in
  • To play a meaningful role in smart infrastructure, we are starting to build our capability and to develop a strategy to manage data on a very large scale. We are also exploring the development of a platform for smart devices to plug into the electricity system on our grid and right across our business.
  • The two focuses of our Innovation Team are: to leverage on technologies and information to get better at what we do; and to develop new areas for our business. We are looking across all our assets and examining how digital technology platforms can help optimise the performance of our generation fleet and as we deepen our skills and capabilities in this area, we can consider the possibility of deriving new revenue streams from such capabilities.
  • With the potentially severe consequence of cyber threat (e.g. disruption of energy supply, theft of sensitive data leading to regulatory breach, and fraud or abuse of CLP brand incidents), we have enhanced internal capacity building, and stepped up our vigilance and detection of such incidents.

These are discussed further in the Intellectual Capital section.

 
Risks Opportunities Actions Taken
  • Ageing workforce creating risks of declining productivity and safety performance
  • Increase in health care costs and sickness absenteeism
  • Pressures on long-term sustainability of pension funds
  • Inter-generational conflict as older workers seek to defer retirement and younger workers seek promotion
  • Younger generation more interested in studying Science, Technology, Engineering and Mathematics (STEM) subject areas because of the impact of new technology
  • Diversify our recruitment sources and increase workforce diversity with a focus on gender
  • Provide intelligent energy-related services to specific demographic segment, for example elderly customer group
  • Increase our market presence in markets with rapid population and economic growth

More detail

Risk Management Approach

Read more about how we manage risks

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Risk Management Report

Read this year’s Risk Management Report in the Annual Report

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New Horizons

Read more about the latest views, emerging trends and developments in the energy industry

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Xundian_3 (COD Jan 2016)