Sustainability and climate risks

Sustainability and climate-related risks are increasingly central to stc's long-term resilience and value creation. As regulatory expectations, stakeholder scrutiny and environmental and social challenges continue to evolve, stc adopts a structured and forward-looking approach to identifying, assessing and managing these risks across stc group. Sustainability considerations are embedded within risk governance processes to ensure alignment with strategic objectives and responsible business practices.

Sustainability risks integrated approach

stc manages sustainability and climate-related risks through an integrated approach that embeds sustainability considerations within enterprise-wide risk management and strategic decision-making. Sustainability risks are identified, assessed and managed in alignment with the company's sustainability priorities, regulatory requirements and long-term value creation objectives.

The Enterprise Risk Management (ERM) Framework provides the overarching governance structure and risk management processes through which sustainability and climate risks are assessed, monitored and mitigated alongside other corporate, technology, operational, financial and legal and compliance risks.

Climate risk and scenario analysis (physical and transition risks)

stc's climate risk and scenario analysis is informed by its 2023 climate risk assessment, which was developed to strengthen the integration of climate-related risks into business strategy and risk management processes. The assessment considers both physical and transition risks across short, medium and long-term horizons and provides a basis for understanding how climate-related factors may affect stc group's operations and resilience.

The company's approach draws from stc's established risk management practices, incorporating structured evaluations of potential risks, financial materiality and impact prioritization. stc examines how climate change could physically and financially affect operations by leveraging internal data, industry insight and scenario modeling to assess risk likelihood and severity.

Scenario

Business as usual

GHG emissions continue rising at current rates with limited mitigation efforts, leading to significant global warming and increased physical risks.

Scenario

Delayed transition (2.0°C)

Emissions stabilize until 2030, followed by the implementation of strong policies to keep warming below 2°C.

Scenario

Net zero carbon transition (1.5°C)

The most ambitious pathway, aiming for aggressive climate policies and innovation to limit warming to 1.5°C and achieve net zero emissions by 2050.

Category	Nature	Risk	Description	Assets	Time horizon
Physical	Acute	Extreme weather	Severe storms, hurricanes or flooding impacts the infrastructure and disrupts services	Marine cables	<2 years (short term)
Physical	Acute	Changes in temperature and precipitation patterns	Changes in temperature and precipitation patterns impact telecommunication towers	Towers	5-10 years (medium/long term)
Physical	Chronic	Water scarcity and quality	Inefficient cooling systems in data centers, leading to increased energy consumption and reduced cooling efficiency	Data centers	>10 years (long term)
Physical	Chronic	Rising sea levels and storm surges	Damage from rising sea levels on coastal area infrastructure, leading to service disruptions and costly repairs	Towers	<2 years (short term)
Transitional	Policy and regulation	Policy and regulatory changes related to climate change	Increase of electricity price owing to requirements for emission reductions, renewable energy adoption and energy efficiency standards	Buildings	2-6 years (medium term)
Transitional	Policy and regulation	Liability risks associated with the transition to a low-carbon economy	Requirements for minimum energy performance of buildings to ensure transition to net zero	Buildings	>10 years (long term)
Transitional	Technology	Technological innovation and disruption	Market moves away from reliance on fossil fuels for logistics and emergence of less carbon-intensive practices	Logistics/ supply chain	<2 years (short term)
Transitional	Market	Shifts in consumer preferences and behavior toward sustainable products and services	Consumers adopt more sustainable behavior and switch to lower carbon products and services	Channels	>10 years (long term)
Transitional	Policy and regulation	GHG emission cost	Introduction of carbon pricing in Saudi on direct emissions to incentivize emission reductions	Finance	2-6 years (medium term)
Transitional	Policy and regulation	GHG emission cost	Introduction of carbon tax in suppliers' countries, resulting in higher cost of operations for supplier companies	Logistics/ supply chain	2-6 years (medium term)
Transitional	Market	Supply chain disruption and increasing material costs	Extreme weather events disrupt supply chain and procurement of materials	Logistics/ supply chain	2-6 years (medium term)
Transitional	Technology	Renewable energy adoption	Late adoption of renewable energy leads to higher energy cost for business activities	Buildings	>10 years (long term)