Understanding our climate-related risks and opportunities

Summary Implications on Kinnevik’s Business, Strategy, and Financial Planning

We have identified near-, mid- and long-term risks and opportunities for the most relevant sectors and sub-sectors. Transition risks related to market, reputation and policy & legal are the most material climate-related risks for the Kinnevik portfolio. On the latter, all our companies are to some degree exposed to transition risks stemming from increased pricing of greenhouse gas emissions and increased emissions reporting obligations. These risks are even more relevant and topical today compared to when we did our initial analysis in 2020. Carbon pricing mechanisms and more rigorous regulations related to emissions reporting could have implications for our companies’ costs, their ability to operate and our return on investment.

Increasing awareness about climate change will continue to impact customer preferences, leading to increased demand for products and services with a low climate impact. The risk of not being able to meet these demands by making the transition to a low-carbon economy may have a significant impact on our companies’ competitiveness. This is relevant for all our companies, although perhaps less so for our healthcare businesses in the short term as their customers primarily prioritise other aspects when choosing a care provider.

Chronic physical risks have also become more prominent in recent years. The most relevant chronic risk is related to temperature extremes and to some degree fluvial flooding. Kinnevik’s most material exposure to temperature extremes sits in the US, followed by Sweden and Norway. This is also reflected in the overall composition of Kinnevik’s portfolio.

We estimate that 12 of the 15 companies included in our analysis are exposed to transition risks and 10 are exposed to physical risks (representing 68 percent and 62 percent of portfolio value as of 31 December 2023). For Kinnevik, the severity of transition risks is considerably higher compared to physical risks, as most of Kinnevik’s companies do not directly own any physical assets and have low dependency on complex supply chains.Meanwhile, we see several opportunities related to climate change, particularly as our strategy is to invest in technology-enabled and innovative businesses. The main opportunity is to be consumers’ preferred choice by leveraging new technology to take the lead in developing products and services with a low or positive climate impact. Compared to more analogue business models, our companies are in a good position to accelerate the pace of transformation to meet the growing demands of their increasingly climate-conscious customer base. In the last few years, Kinnevik has also started to invest into climate tech businesses, leading the global decarbonisation effort. More details on the climate-related risks and opportunities for each of our sectors and sub-sectors, as well as case studies of our companies taking the lead in combatting climate change, are available in the TCFD Index 2024.

We estimate that 10 companies included in our updated analysis are aligned with climate-related opportunities (representing 54% of portfolio value 31 December 2023).

Summary Results of Scenario Analysis

As our strategy is to invest in digital companies operating primarily a marketplace model, our portfolio generally has relatively low dependency on complex supply chains, physical assets and fossil fuels. Hence, our strategy shows relative resilience in a Very High Emissions Scenario. However, in this scenario the overall benefits of sustainability and low emissions services are not recognised by consumers, impacting businesses trying to use sustainability as a competitive advantage.

As an investor in consumer-facing sectors, Kinnevik is exposed to a broad set of transition risks in the Stringent Mitigation Scenario, particularly related to market and reputation, i.e. shifting consumer behaviour because of increased climate consciousness and reputational risk related to greenwashing allegations. We are also exposed to increasing regulation and climate-related disclosure requirements. Meanwhile, this scenario also offers the largest climate-related opportunities for Kinnevik’s companies to take the lead with more sustainable solutions.

In 2023, Kinnevik conducted a quantitative analysis of our portfolio’s exposure to physical climate risks in financial terms, showing that temperature extremes is the most prominent physical risk to the portfolio in both scenarios. However, the likelihood and impact of transition risks is considerably higher than physical risks in both scenarios.
Based on our analysis, the scenario with the largest potential negative impact on Kinnevik’s business, strategy and financial planning is the Very High Emissions Scenario. The most favourable scenario is conversely the Stringent Mitigation Scenario, as the climate-related opportunities in our portfolio in this potential future would likely outweigh the climate-related transition risks. The climate related risks identified in both scenarios may however lead to slower growth and lower profits for our companies leading to lower investment returns for Kinnevik, which in turn may lead to implications on our investment strategy and capital allocation decisions.The results of the scenario analysis were first presented to Kinnevik’s Risk Committee in February 2021, and to the Audit & Sustainability Committee in March 2021. The updated analysis conducted in 2022 was shared with the management team in June 2022 and presented to the Audit & Sustainability Committee in September 2022. The additional quantitative analysis of our portfolio’s exposure to physical climate risks conducted in 2023 was presented to the Audit & Sustainability Committee in March 2024.

Implications on Kinnevik’s Business, Strategy, and Financial Planning

In the Stringent Mitigation Scenario, our strategy may be affected as we will likely put increasing emphasis on climate aspects in capital allocation decisions, and increasingly look to invest in companies that will thrive in a low-carbon economy. In the Very High Emissions Scenario, our strategy may be affected as we may decrease our exposure to businesses with complex supply chains. In 2022, Kinnevik made its first larger investments into climate tech, allowing us to further seize the opportunities of the transition towards global emissions neutrality.