1.4.3Climate Change Impact, Risk and Opportunity

SBM Offshore’s ambitions as an energy transition company are founded on the physical and transitional challenges that climate change brings. SBM Offshore is committed to a responsible transition in which energy stays affordable to society, while addressing climate change impacts from greenhouse gas emissions from more traditional forms of energy. SBM Offshore applies these insights to its strategy development and actions as part of its Enterprise Risk Management process. The sections below cover the mitigation of significant risks relating to climate change and portfolio risk, as explained in section 1.4.2.

Climate change management is discussed at Management Board level, in particular as part of the energy transition and emissions material topics. At regular performance management meetings, the performance of New Energies and the emissionZERO^® transformation program is reviewed. On a quarterly basis, progress on the UN SDGs are discussed, including climate-change-related company targets. Climate change risk and opportunities are also discussed as per the risk-management cycle described in section 3.5. Outcomes of these meetings are, for example, the risk appetite statement mentioned in section 1.4.1, the long-term goals described in section 2.2 and the climate change ambitions and scenarios described in this paragraph. Furthermore, climate change mitigation measures and KPI’s, including GHG emission targets, are embedded in the remuneration of the management bodies, as can be read in section 3.3.2.

During 2023, SBM Offshore started to deploy climate change awareness workshops: Climate Fresk. To date, approximately 200 employees have participated in Climate Fresk workshops, including SBM Offshore’s Management Board and Executive Committee. In December, 9 Sustainability Ambassadors were trained to be Climate Fresk workshop facilitators, extending the potential reach for climate change awareness within SBM Offshore.

AMBITIONS AND TRANSITION PATH

SBM Offshore is committed to a strategy and actions compatible with its ambition to achieve net zero by no later than 2050, including emissions in scope 1, scope 2 and scope 3 – downstream leased assets. SBM Offshore has established the following intermediate targets: by 2030, SBM Offshore targets net zero scope 1 and 2 emissions¹, and for scope 3 – downstream leased assets; a 50% reduction of GHG intensity² and zero routine flaring³ (2.1.7). This strategy has been approved by SBM Offshore’s Management Board and Supervisory Board.

SBM Offshore envisages applying a science-based approach, using key frameworks, such as below, or equivalent:

1. Assess the impact on the business using frameworks from the Task Force on Climate-Related Financial Disclosures (TCFD).
2. Set targets, using guidance from the Science Based Targets initiative.¹
3. Measure performance, based on guidance from the Greenhouse Gas Protocol and the EU Taxonomy.
4. Disclose performance, leveraging above standards to disclose in this report and the CDP Benchmark.

The transition path towards its net zero ambitions is supported by:

1. SBM Offshore’s emissionZERO^® program.
2. Development of new technologies and projects targeting new energies.
3. The optimization of energy use and emissions of downstream leased assets (FPSO) up to end of contract.
4. Deployment of green energy in SBM Offshore office locations.
5. Balancing residual emissions in office locations without access to green energy.
6. Continuous engagement with value chain partners to co-create solutions.

Furthermore, the decommissioning of downstream leased assets at end-of-contract will affect the transition path.

Information on ambitions, achievements and future developments that support the above path can be found in sections 2.1.7 , 2.1.9 and 2.2.

The above actions mainly relate to the time-frame up to 2030, due to the pressure-build on global climate goals. As per explanation under section 1.2.1, the demand for energy continues to grow. The composition of the energy mix, in particular beyond 2030, is uncertain. Even scenarios aligned with a well-below 2 degrees and 1.5 degrees global warming future still seem to require fossil energy to fulfill global energy demand towards and beyond 2050. Although a global mediation mechanism to allow for selection of the lowest emission energy sources does not yet exist, SBM Offshore − supported by external views − sees deepwater oil and gas projects as an affordable, low carbon intensity source of energy going forward. Any residual emissions − after avoidance and reduction of emissions − would have to be balanced for a net-zero future. This can be done through, for instance, carbon capture and storage or nature-based solutions. The timing and required means for balancing scope 3 emissions in particular are dependent on the reduction and balancing measures SBM Offshore’s value chain partners will take, which will require industry-wide commitments and collaboration. SBM Offshore is ready to engage and provide solutions for a net zero future.

With regard to financial resources allocated to the above path and associated actions − OPEX and CAPEX − the EU Taxonomy disclosure in section 5.1.5 provides further detail, explaining investments in new energies and related technology. Non-eligible activities relate mainly to the oil and gas business. R&D OPEX related to this business is largely allocated to initiatives that increase energy efficiency and lower emissions. More significant CAPEX will be needed, from the readiness of the emissionZERO^® FPSO onwards (targeted 2025). For this to materialize, SBM Offshore is dependent on investment decisions taken by its clients.

The above approach supports SBM Offshore in the framing of targets and actions in light of the global guidance from the Paris Agreement. These ambitions reflect the current understanding of the business and are subject to further development in the future.

Future-Proofing: Climate Change Scenarios

SBM Offshore looks at various climate-change scenarios to future-proof its ambition and transition path. The scenarios are based on International Energy Agency (IEA) and Intergovernmental Panel on Climate Change (IPCC) data, as explained in section 5.1.4. In order to cover transitional and physical risks, the below scenarios are relevant:

1. The IEA Stated Policies Scenario (STEPS), a climate change scenario that falls short of meeting the Paris Agreement goals − i.e. a >2 degrees scenario.
2. The IEA Net Zero Emissions (NZE) scenario, a climate action scenario providing for strong commitment towards targets, as per the Paris Agreement, i.e. a 1.5 degrees scenario.

STEPS scenario

• Key risks are: mainly physical in nature with potential weather-related disruptions to the construction and operation of FPSOs and renewable energy projects. Even if the demand for hydrocarbons stays almost flat compared to current levels, funding these projects might become more challenging.
• Key opportunities are: the need for resilient ocean energy solutions owing to increased weather events and a continued demand for FPSOs.

The bottom-line impact of the scenario is an improvement in revenue potential through a stronger FPSO demand outlook and an opportunity for resilient energy production solutions and projects.

NZE scenario

• Key risks are: the decrease in demand and access to funding for FPSOs with a traditional emissions profile; insufficient internal resources to address the energy transition; and increasing carbon taxes.
• Key opportunities are: the development of new, cleaner solutions that address the energy transition and the ability to attract new investors supporting SBM Offshore’s sustainability agenda. A carbon price would also lead to a more favorable business case for emissionZERO^® products.

The bottom-line impact of the scenario for SBM Offshore’s traditional markets could be significant if unmitigated and, as such, it is covered by scenario planning under SBM Offshore’s Group Strategy Development and Performance Management approach.

Climate change impact assessments are also undertaken for client projects, in close co-operation with project lenders and external consultants, and provide insight into the physical and transitional risks of these projects. Examples of the physical risk metrics used are the exposure to flooding in yards under different climate scenarios and the number of storms in offshore locations. Transitional risk metrics examine the exposure to oil and gas supply/demand changes under various scenarios and the potential impact of carbon pricing.

Climate Change Scenario ImpactS

Present world

Today the world seems to be moving away from the NZE scenario by IEA − where meeting a 1.5-degree path is becoming increasingly challenging, global demand for hydrocarbons is still firm and renewable energy projects are facing headwinds. This challenges the emission reduction path required for a 1.5-degree-aligned future, with the UN currently projecting above 2.5 degrees warming should there be no further mitigation.

Related to the risks described below, SBM Offshore sees changes in the financing landscape. For instance, the Export Credit Agencies (ECA's) in Europe are decreasing their support for the oil and gas industry, potentially increasing the cost of capital for energy supply. As per the below mitigation, SBM Offshore has engaged with clients on alternative commercial models and with potential lenders on the appetite for future projects.

SBM Offshore also sees the risk of delay in product development materializing, mostly in offshore wind. Some companies in the industry have faced financial setbacks due to price inflation and countries’ lower appetite for subsidies. SBM Offshore is keeping a selective approach to its New Energies pillar and future offshore wind business, focusing on viable projects with a scale that drives the affordability of renewable energy.

The graph and tables below provide further detail. Any financial risks are described further in section 4.3.27. Scenarios are part of an ongoing process to challenge perspectives on future business environment, rather than to predict outcomes.