PERNOD-RICARD - URD 2021-22 EN

4. Risk management Risk factors

3. Climate change and environmental damage (1)

RISK IDENTIFICATION AND DESCRIPTION

POTENTIAL IMPACTS ON THE GROUP

Increasingly irregular crop yields, climate events such as frost, hail and drought and shifting climatic boundaries can affect the quality, availability and, to a greater extent, the price of raw materials. Where grains or sugar cane are concerned, this effect, coupled with rising global demand, is contributing to increasing market price volatility, which must be taken into account in procurement strategies and business supply models. As regards grapes – another of the Group’s key raw materials – climate models point to a trend showing an increase in the alcohol content in wine and champagne, adjustments to certain qualitative parameters and changes in phytosanitary pressure, as well as the risks of frost or drought, which vary depending on geography. A similar risk exists in relation to the water supply for production sites: a number of sites use underground water tables for their supply and these can also be affected by climate change. From a regulatory point of view, environmental issues, and in particular climate-related issues, are leading to stricter regulations on carbon emissions. In Europe, the Group’s four largest distilleries are subject to the European Union carbon emission trading system (EU-ETS). The direct financial challenge is moderate for Pernod Ricard but can be expected to increase significantly in the years to come. The economic impact of regulations on energy and carbon is also felt through indirect consumption via the Group’s suppliers (especially with respect to glass, alcohol and transport).

Climate change creates risks of various kinds for Pernod Ricard’s activities: risks to the supply of raw materials such as grapes and cereals, risks relating to the availability of water resources (floods, droughts, etc.), climate-related incidents (cyclones, flooding, and similar), etc. Moreover, the need to reduce the carbon emissions at the root of climate change itself generates new risks and opportunities for the Group, in particular with regard to the reduction of direct and indirect emissions (see the Group’s Net Zero commitments) and the transition to renewable energies. On the other hand, potential damage could be caused by Pernod Ricard (CO 2 emissions, accidental pollution).

RISK CONTROL AND MITIGATION

For grapes, the relevant inter-professional organisations, such as those for cognac and champagne and the corresponding organisations for wine in Australia and New Zealand, have incorporated this issue into their research programmes in order to adapt their practices to the changes (choice of grape varieties, vine training, vinification, etc.). The availability and quality of water at the production sites are key factors in ensuring the quality of Pernod Ricard’s products and are monitored very closely. Responsible water management is a significant component of the Group’s CSR policy: each site has to ensure that the use of groundwater or river water and the release of wastewater back into the environment do not harm nature. Sites located in areas identified as high risk in terms of water supply are subject to enhanced monitoring so as to ensure the sustainability of resources used by minimising water consumption and recharging the equivalent volume of water in the same area from which it is taken. As for the financial impact related to CO 2 emissions generated directly by the Group’s activities or indirectly by its suppliers, a CO 2 emission reduction plan has been put in place, aligned with a scenario of less than 2°C. In addition, Pernod Ricard’s impact on the climate was taken into account in the definition of the “Preserve to share” roadmap. In concrete terms, the “Nurturing terroir” and “Circular Making” pillars involve the Company in the following areas: regenerative agriculture: by 2025, pilot regenerative agriculture programmes will be developed by the Group for vineyards in eight wine-growing regions – Argentina, California, the Cognac region, Champagne, Spain, Australia, New Zealand and China – aiming to improve the quality of soils and ecosystems. Identical initiatives are under way for the Group’s other major strategic raw materials to increase the resilience of agricultural systems. These programmes are also a remarkable opportunity to create carbon sinks through soil sequestration and to have a positive impact on the climate; packaging (2) : as part of its commitment to reduce its scope 3 GHG emissions by 50% by 2030 (2018 being the reference year), the Group is working to reduce packaging and commits its suppliers to decarbonising their activities. Pilots are conducted to test alternative distribution methods for products without primary packaging. Single-use plastic promotional items are eliminated; and the balance of water resources and the carbon footprint: by 2030, offset of 100% of the consumption of production sites located in watersheds under high water stress, by replenishing water resources in these regions, and a 50% reduction in the carbon intensity of the Group’s activities, in line with the Science-Based Targets initiative.

Note that this risk is also covered in Subsection 3.3.3.2 of the Non-Financial Information Statement. (1) Note that these objectives are described in the Non-Financial Performance Statement in Subsection 3.3.3.2, on pages 128 and 129. (2)

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Pernod Ricard Universal Registration Document 2021-2022

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