PERNOD RICARD - Universal Registration Document 2019-2020

4. RISK MANAGEMENT Risk factors

Industrial and environmental risks II. Climate change and environmental damage (1) 1.

RISK IDENTIFICATION AND DESCRIPTION

POTENTIAL IMPACTS ON THE GROUP

Given the nature of Pernod Ricard’s business, climate change and related risks are a major concern: on the one hand, the climate impacts the Group's activities in — several ways: threats to the supply of raw materials such as grapes and grain, risks related to the management of water resources (flooding, drought); and on the other hand, potential damage can be caused by — Pernod Ricard (CO 2 emissions, accidental pollution).

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 are concerned, this effect, coupled with rising global demand, is contributing to increasing volatility of market prices, which must be taken into account in procurement strategies and economic supply models. As regards grapes – another of the Group’s key raw materials – climate models point to an increase in alcohol content in wine and champagne, changes to certain qualitative parameters and change in phytosanitary pressure, as well as the risk 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 our suppliers (especially with respect to glass, alcohol and transport).

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 Group's production sites are therefore key factors for ensuring the quality of its products and are monitored very closely. Responsible water management is a significant component of the Group’s environmental 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 catchment area. As for the financial impact related to CO 2 emissions generated directly by our activities or indirectly by our suppliers, the Group is implementing a CO 2 emission reduction plan aligned with a scenario of less than 2°C.

(1) Note that this risk is also covered in Section 3.3.3.2 of the Extra-Financial Reporting.

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Pernod Ricard Universal Registration Document 2019-2020