| a) Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long term. |
Carlisle considers risks and opportunities over short-term (0-18 months), medium-term (1.5 – 7 years), and long-term (7-10 years) time horizons. Physical risks from extreme weather effects including extreme temperature, water stress, storms, and flooding were assessed as relatively low. Medium-term transition risks and strategic opportunities were identified as follows:
Transition Risks
Climate-related policy and regulation: Changes in environmental and climate change laws or regulations, including laws relating to GHG emissions, could lead to new or additional investment in the Company’s products or facilities and could increase environmental compliance expenditures. Changes in climate change concerns including GHG emissions, and the regulation of such concerns including climate-related disclosures, could subject the Company to additional costs and restrictions, including increased energy and raw material costs and other compliance requirements which could negatively impact the Company’s reputation, business, capital expenditures, results of operations and financial position.
Reputational risks relating to ESG commitments: Carlisle has made several public commitments regarding our intended reduction of GHG emissions, including commitments to achieve net-zero GHG emissions by 2050 and the establishment of science-based targets to reduce GHG emissions from our operations and the operations of our value chain. Although we intend to meet these commitments, we may be required to expend significant resources to do so, which could increase our operational costs. Further, there can be no assurance of the extent to which any of our commitments will be achieved, or that any future investments we make in furtherance of achieving such targets and goals will meet investor expectations or any binding or non-binding legal standards regarding sustainability performance. Moreover, we may determine that it is in the best interest of our company and our stockholders to prioritize other business, social, governance or sustainable investments over the achievement of our current commitments based on economic, regulatory, and social factors, business strategy or pressure from investors, activist groups, or other stakeholders. If we are unable to meet these commitments, then we could incur adverse publicity and reaction from investors, activist groups, and other stakeholders, which could adversely impact the perception of our brands and our products and services by current and potential customers, as well as investors, which could in turn adversely impact our results of operations.
Increased costs of raw materials: The Company utilizes petroleum-based products, chemicals, resins, and other commodities in its manufacturing processes. Raw materials, including inbound freight, accounted for approximately 79% of the Company’s cost of goods sold in 2022. Significant increases in the costs of these materials may not be recovered through selling price increases and significant disruption to the Company's supply chains or significant shortages of materials could adversely affect the Company’s business, financial condition, results of operations and cash flows. The Company also relies on global sources of raw materials, which could be adversely impacted by unfavorable shipping or trade arrangements, including import and export tariffs and global economic conditions. Changes in climate-related concerns, or in the regulation of such concerns, could further subject Carlisle to increases in cost of goods sold from raw materials.
Weather related events impact on construction activities and demand for materials: Adverse weather conditions such as heavy or sustained rainfall, cold weather and snow can limit construction activity and reduce demand for roofing materials.
Opportunities
Increased demand for low emission goods and services: In the United States, more than 30% of emissions come from the "built environment", making building energy efficiency one of the most impactful ways to reduce GHG emissions. The 1.5⁰C scenario calls for a 50% reduction in GHG emissions by 2030. As we continue to push towards this goal and other emissions-reducing efforts, demand for Carlisle’s energy conserving and thermal insulation systems will increase, which will in-turn increase revenues.
Resource substitutes leading to resilience opportunity: Carlisle’s legacy of recycling and continuous improvement began over 100 years ago with the introduction of scrap rubber into the inner-tube production line. Today, millions of pounds of scrap material feed Carlisle’s production processes and provide post-consumer or production waste to a wide variety of products. Carlisle will continue this legacy by growing end-of-life programs. Recycled end-of-life materials can be used to supplement raw material purchases of carbon-intensive products.
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| b) Describe the impact of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning. |
Climate-related risks and opportunities have influenced Carlisle's businesses, strategy, and financial planning in the following areas:
Products and Services: Risks and opportunities related to growing demand for energy and carbon efficient products have influenced our product strategy. For example, in 2022, we've made significant progress in the construction of our state-of-the-art Leadership in Energy and Environmental Design (LEED) certified facility in Sikeston, Missouri, which is expected to be fully operational by the summer of 2023. This new facility will be manufacturing energy efficient polyiso insulation, which reduces cooling and heating costs for buildings and, in turn, reduces a buildings carbon footprint. In 2022, we also began the production of the commercial roofing industry's first 16-foot-wide TPO membrane manufacturing line, which results in less packaging waste.
Supply Chain and Value Chain: Based on the tenants of our Environmental Sustainability Policy, which specifies the collection of detailed ESG data from our facilities across the globe, we can measure factors such as GHG Emissions which we will use to evaluate our progress towards achieving our established targets. The policy further establishes a process to engage our supply chain and monitor compliance with Carlisle policies for fair labor practices and our Code of Business Conduct and Ethics. We maintain appropriate records of environmental sustainability commitments of our suppliers, subcontractors, and sub suppliers. This includes, but is not limited to, the conformation to all the requirements of our Environmental Sustainability Policy. We maintain appropriate procedures to evaluate and select suppliers considering their performance and commitment to meeting the requirements of the Environmental Sustainability Policy. In our supply chain, we utilize life cycle assessments as a transparent, objective report that communicates what a product line is made of and how it impacts the environment across its entire value chain. These actions will allow for significant environmental impacts to be identified and addressed throughout our supply chain.
Investments in R&D: It is a part of Carlisle's key growth and business strategy, Vision 2025, to drive innovation through enhanced focus on research and development to continue to introduce proprietary, differentiated value-add products and solutions. Our research and development activities include the development of new product lines, the modification of existing product lines to comply with regulatory changes, and the research of cost efficiencies through raw material substitution and process improvements. Risks and opportunities related to climate change are considered in Carlisle’s R&D investments as Carlisle aims to provide products with proven long-term performance, lasting energy efficiency, greater weather resistance, excellent heat and UV resistance, and industry leading resilience.
Operations: Risks and opportunities arising from scope 1, 2, and 3 GHG emissions have influenced our operations strategy. Carlisle utilizes the Carlisle Operating System (COS) to drive operational excellence using principles of lean and six sigma. Through COS and as part of our Environmental Sustainability Policy, Carlisle continues to work toward our commitment to certify all of our manufacturing facilities to the ISO 14001 Environmental Management System by the end of 2025.
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| c) Describe the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario. |
As part of our climate-related risks and opportunities assessment, we completed a scenario analysis aligning to multiple climate scenarios. These include the Stated-Policies Scenario (2.5°C), the Sustainable Development Scenario (1.5°C), and a no mitigation scenario (4°C to 5°C). The results from this analysis show that without any action, climate change will affect Carlisle to a varying degree in terms of both transition and physical factors. The key climate-related challenges for Carlisle are likely to be transition risks, which vary significantly depending on the ambition and speed at which jurisdictions act to align to a 1.5°C trajectory.
We recognize that buildings are evolving, and their improved energy efficiency is pivotal to the world meeting its environmental goals. With many product and service innovations underway, Carlisle is positioned to address trends impacting the building space such as product circularity, energy conservation, localization, emerging material technologies, construction labor efficiency, evolving building use, technology proliferation, and job site transformation. In addition, COS and our culture of continuous improvement will allow deeper technology integration alongside gains in operational efficiency and product quality.
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