Client
Expertise
Climate risks and opportunities
Impact
Making a global climate strategy actionable at a local level.
CHALLENGE
How can regional entities strengthen the climate resilience of a global business?
Few areas are as exposed to climate change as our food systems. Farmers feel the consequences of heat stress on their livestock and climate-linked crop failures, while supermarkets and food companies face disruptions in supply chains and shifts in consumer demand. There is no doubt that companies must assess and manage these risks to keep their business, and ultimately our food systems, resilient.
As one of the largest retailers in the world, Walmart has developed a climate strategy to manage its risk exposure and remain competitive. However, risks vary across regions. Policies or landscapes that will affect a branch in one country will not impact another. As Walmart's largest division outside the US, Walmart de México y Centroamérica, recognised that to support the retailer’s global climate strategy, it needed to break down the local risks and opportunities woven through its operations and verticals.
SOLUTION
Zooming in on climate risks across Walmart de México y Centroamérica
Walmart periodically assesses its climate risks and opportunities to update its climate strategy. The last assessment, updated in 2020, was a good foundation from which Walmart de México y Centroamérica could cultivate its own risk assessment, covering commercial operations in Mexico, Guatemala, Honduras, El Salvador, Nicaragua and Costa Rica as well as its verticals, including all physical stores, covering the 15 store brands; health services (Walmart Salud); financial services (CASHi); ecommerce; advertising platform (Walmart Connect); and phone and home internet services (BAIT). To get a clear picture at a local level, we:
Met decisionmakers in procurement, finance and the central team to better understand the regional operations. From this, we grouped the store brands across regions and business vertical to ensure that the risk assessment accurately reflected operations. We identified 13 transitional risks, seven physical and six opportunities across the value chain.
Evaluated climate-related physical risks across locations by entering their coordinates into an internal tool, extracting climate projections, and identifying high and very high acute and chronic risks. Only risks with high scores were included in the analysis, such as extreme temperatures (including heat waves), floods changes in precipitation, tropical cyclones and fires.
Assessed the likelihood and velocity of occurrence of transitional risks and opportunities in the short, medium and long term across all operations – from Mexico to Costa Rica. Risks ranged from higher cooling demand and carbon pricing’s impact on procurement costs to operational disruption.
Modelled the financial impact of each risk and opportunity for every business vertical to show what is at stake if they go unaddressed. We considered sales proportions across regions, revealing that not all risks carry equal weight. For example, a single-use plastics ban will impact operations in El Salvador, Honduras, and Nicaragua, but not in Mexico, where Walmart has already adapted.
Pinpointed key opportunities to reduce costs or generate revenue. These include transitioning to efficient resource use, regionalising the value chain, investing in adaptation, and implementing initiatives to lessen transition risks and stay ahead of regulatory changes.
Compressed our findings into a model and presented it to upper management. The results of this model will provide each business vertical inputs to discuss defining actions that will support risk mitigation and adaptation in a local context.
IMPACT
A first step for climate action at a local level
This extra level of detail has shown both Walmart and Walmart de México y Centroamérica that the impact of climate change needs to be considered at both a global and local level. Walmart de México y Centroamérica gained valuable insights into how it can respond to climate change and mitigate its impact. By taking this local and business-specific approach, the division is able to:
Complement Walmart’s existing climate strategy, ensuring the local branches can take targeted action to protect operations across Mexico and Central America.
Integrate the results into the decision-making of all of business processes. Doing so will also support the branch’s reporting alignment to the new International Financial Reporting Standards (IFRS 2) to which Walmart de México y Centroamérica must adhere.
Make the financial case for investing in actions that will mitigate the most material risks.
Take ownership. The model to filter and assess the top risks and opportunities across verticals gives teams the autonomy to mitigate these risks directly. It shows that each team has a role to play in futureproofing the business.
We greatly valued the insights from the Carbon Trust’s experts here in Mexico, who had a clear understanding of the industry's global risk exposure as well as the particular risks of our region and their potential impact on our operations if left unaddressed. Thanks to their work, we are improving the ways in which we manage climate risks at a local level. It’s an important milestone in futureproofing our operations on the ground.
