Risks associated with climate change

[G4-EC2] The risks associated with climate change for the telecommunications sector have implications of a physical, economical and regulatory nature, with major repercussions even on the image and reputation of the company. In Italy, in particular, considerable flooding has occurred in recent years, which has had a devastating impact on vast areas of land, cities and infrastructure.

TIM’s installations, network infrastructure and Data Centres are spread across the country and the Company believes that flooding is one of the most serious physical risks and the one most likely to occur. The evaluated effects consist of damage ranging from reduced use to loss of properties and, in extreme cases, total loss of the ability to provide the service to customers. In order to prevent or limit the potential damage, TIM’s new exchanges and buildings are built at a safe distance from rivers and bodies of water in general and, in order to ensure continuity of service, the network is designed considering appropriate levels of resilience and redundancy.

In Italy, the situation of the network infrastructure, particularly areas where there is a heightened hydro-geological risk, is monitored using the company’s Ci.Pro. (Civil Protection) system, which uses a database of information relating to the territory and infrastructure, which is continuously updated with a view to planning the work required as quickly as possible. Lastly, the physical risks to which company assets are in any case subject, are managed by insurance cover that takes into account the value of the structure and equipment as well as any effects that these catastrophic events would cause for the service. 

In Brazil, changeable weather conditions increasingly give rise to extreme meteorological conditions and TIM Brasil has developed technologies and applications for effective and continuous monitoring, particularly in areas at greatest risk The Company has also invested heavily in advanced infrastructure and technologies, not only to guarantee the continuity and quality of the service offered to customers, but also to improve efficiency and reduce the consumption associated with its operations.

At present in Brazil most electricity is generated by hydroelectric plants (64% according to data from the Balanço Energético Nacional – 2016). Long periods of drought can lead to a dramatic reduction in the availability of electricity, to an increase in its cost and to increasing recourse to fossil fuels. Lower availability of water in water basins may lead to the rationing of energy and significant fluctuations in the cost per kWh.

In Brazil, the national policy on climate change, which was defined in 2009 (law 12187) and is governed by decrees 7390/2010 and 7643/2011 supplemented by sectoral plans for mitigation and adaptation to climate change, confirms the country’s alignment with international initiatives, including the agreements signed in Paris (COP21) which were also signed and ratified by Brazil, under which the “Nationally Determined Contribution”¹ amounts to a 37% reduction in emissions by 2025 compared to 2005 levels.

In the states of São Paulo and Rio de Janeiro, which are the ones where most of the country’s industrial and commercial activities are concentrated, specific state laws have been introduced on climate change.

A considerable amount of TIM’s emissions are associated with electricity consumption, particularly by the network infrastructure. Energy industry policies tend to lead to an increase in the cost of energy and these increases are in turn transferred to users, and therefore also to TIM, which may see an increase in the cost of the goods and services it buys from suppliers, in particular those that produce telecommunications equipment and infrastructure.

Extreme weather conditions like highly frequent high intensity storms can damage the network infrastructure, particularly transmission towers and pylons, thus increasing the cost of management and insurance against risks, reducing coverage, weakening the signal and interrupting the service. Variations in the levels of humidity and salinity in the air can reduce the service life of equipment. Furthermore, an increase in the average temperature can lead to a greater consumption of electricity by air conditioning and cooling systems. Potential flooding make it difficult for staff to travel and do their work, thus reducing the efficiency of the system.

¹ The aim is to reduce greenhouse gas emissions to the level established nationally by each signatory country to the Paris agreements and communicated to the UNFCCC, which then includes it in a special register.