2023 TCFD Disclosure

Read the 2023 TCFD Disclosure

TABLE 1. CLIMATE SCENARIOS AND ASSUMPTIONS

Current Polciies Net Zero 2050 Delayed Transition
Scenario Existing climate policies remain in place, but there is no strengthening of ambition level and climate action remains minimal. Stringent climate policies and innovation, reaching global net zero GHG emissions around 2050 Climate policies are delayed, which forces a very aggressive policy response starting in 2030
Impact of transition and physical risks High physical risks, Low transition risks Low physical risks, Medium transition risks Medium physical risks, Medium to high transition risk
Policy Ambition* 3°C+ 1.4°C 1.6°C
Policy reaction No additional** policy reaction Immediate and smooth policy reaction Delayed policy reaction
Technology Slow technology change Fast technology change Slow then fast technology change
Carbon dioxide removal Low use of carbon dioxide removal Medium/high use of carbon dioxide removal Low/medium use of carbon dioxide removal
Regional policy reaction Low regional policy variation Medium regional policy variation High variation in regional policies

Scenario descriptions based on the NGFS scenarios framework as well as datafrom NGFS Climate Impact Explorer and NGFS IIASA Scenario Explorer.

*above pre-industrial levels by 2100c

**because NGFS's phase 3 data set was developed in 2022, this notably does not include major recent policies such as the U.S. Inflation Reduction Act

TABLE 2. CLIMATE-RELATED RISKS AND OPPORTUNITIES

The climate-related risks and opportunities identified by the scenario analysis that may be most impactful to Lincoln Electric’s business, as well as a description of the potential impact, are set forth in the tables below. Time horizons correspond to Lincoln Electric’s 2023 CDP Climate Change Response: short-term is 1-3 years, medium-term is 3-5 years, and long-term is 5-10 years.

Transition Risks and Impacts
TCFD
Category		 Risk Impact Time
Horizon		 Impact
Classification
Policy and Legal Rising compliance costs With new and upcoming climate-related regulations such as SEC rules, California bills, CSRD, CSDDD and jurisdictional adoption of ISSB standards, LECO and its suppliers will need to invest time and resources into compliance (e.g., capital). This will, directly and indirectly, increase cost for LECO, as it sources and must comply across many regions. Short,
Medium,
Long		 Increased operating costs
Decarbonization requirements LECO faces the risk of substantial costs and disruptions due to decarbonization regulations necessitating significant alterations to high-emission inputs and manufacturing processes, potentially increasing sourcing, production, capital, and R&D expenses. Medium,
Long		 Increased operating costs
Technology “Greener alternatives” may be more expensive Investing R&D and procurement resources into lower-emissions inputs and products (e.g., green steel) may be more expensive for LECO and may not be financially viable in the long term. Long Costs to adopt/deploy new practices and processes
Market Declining personal disposable income of consumers If personal disposable income in the U.S. declines due to climate-induced economic distress, regulatory costs, unemployment, and infrastructure damage, demand for LECO’s welding products may decline. Medium,
Long		 Reduced demand for goods and services
Shifting customer and product base If the oil and gas industry encounters heightened fines and stricter regulations, and there's a push for grid transition to renewables, LECO could experience a decline in sales. This would necessitate adjustments in both product offerings and sales strategies. Medium Change in revenue mix and sources, resulting in decreased revenues
Stress impacts labor productivity Workers are likely to experience heightened stress stemming from multiple factors such as geopolitical unrest, physical climate disruptions, inflation, and decreasing disposable income. This increased stress and declining mental health could potentially impact productivity at LECO, leading to potential operational setbacks and heightened costs. Short,
Medium,
Long		 Increased production costs due to chang-ing input prices and output requirements
Labor market disruption As manufacturing transitions to increased automation, physical impacts of climate change increase, and climate migration continues to rise, workers may encounter employment challenges, prompting them to explore job options in alternative industries, requiring them to upskill their capabilities. Medium,
Long		 Increased production costs due to chang-ing input prices and output requirements
Raw material scarcity The availability of raw materials may decrease, either due to physical impacts from climate change, geopolitical turmoil, or increased demand for materials. This may make it difficult for LECO to meet production deadlines, adhere to product specifications and quality standards, maintain its product mix, and may result in increase costs. Short,
Medium		 Change in revenue mix and sources, resulting in de-creased revenues
Reputation Stakeholder expectations LECO stakeholders, including investors, customers, and employees, will increasingly insist on decisive steps toward decarbonization and robust sustainability measures to align with evolving market and regulatory expectations. Failure to meet these demands may tarnish LECO's reputation and impede access to capital. Short,
Medium,
Long		 Reduction in capital availability
Physical Risks and Impacts

The following outlines physical risks that present the greatest potential impact to Lincoln Electric across the three climate scenarios.

TCFD
Category		 Risk Impact Time
Horizon		 Impact
Classification
Acute Declining employee health More frequent heatwaves, hurricanes, wildfires, and water/air pollution will impact LECO facilities across the globe, as the health and safety of LECO employees and communities come under risk. This may result in increased costs via workers' compensation requirements as well as declining productivity, resulting in supply chain and operational disruptions. Short,
Medium		 Reduced revenue and higher costs from negative im-pacts on workforce
Increased disruption and costs in the supply chain and operations With growing physical impacts from climate change, LECO’s supply chain and operations are at risk of significant delays and disruptions. LECO may have to spend time and resources on crisis response and adaptation efforts instead of long-term financial growth and resilience. Short,
Medium,
Long		 Reduced revenue from decreased production capacity
Energy instability Persistent grid unreliability poses challenges for LECO and its suppliers in transitioning operations to renewable energy sources, heightening the risk of potential delays and disruptions. Medium,
Long		 Increased operating costs
Chronic Declining regional labor productivity As climate-related physical impacts, such as heat stress, disrupt labor productivity and employees' ability to work, operating costs will rise. LECO may face a competitive disadvantage if its supply chain and operations are based in regions that are relatively more affected by physical impacts. Short,
Medium,
Long		 Reduced revenue and higher costs from negative im-pacts on workforce
Uninsurable assets As owned and supplier assets face higher insurance premiums or become uninsurable because of high physical risk, including floods and wildfires, costs at LECO will rise as it must pay higher insurance premiums, carry risk in-house, or pay its suppliers higher prices for their goods. Medium,
Long		 Increased insurance premiums
Water shortages across the value chain Water availability, critical for sourcing ingredients, production, and the distribution of LECO products, may negatively impact LECO’s raw material availability, operational efficiency, and supplier logistics. Reduced revenue from decreased production capacity Short,
Medium,
Long		 Reduced revenue from decreased production capacity
Opportunities and Impacts

The following outlines opportunities that present the greatest potential impact to Lincoln Electric across the three climate scenarios.

TCFD
Category		 Risk Impact Time
Horizon		 Impact
Classification
Resilience Local, shorter supply chains LECO can opt to source more inputs locally to lower its costs and emissions, as well as reduce geopolitical risks and risks Short,
Medium		 Reduced revenue and higher costs from nega-tive impacts on workforce
Staying ahead of ESG regulation If LECO progresses on ESG ahead of competitors and mandatory regulatory requirements, it may shield itself from price shocks and regulatory penalties aimed at companies that have not been able to meet compliance standards. Short,
Medium,
Long		 Increased valuation through resilience planning
Resource Efficiency Automation in manufacturing Implementing more automation in LECO's operations and supply chain could mitigate the risk of equipment-related injuries, minimize delays caused by climate-related dis-ruptions, reduce expenses associated with workers' compensation, employee insurance, and healthcare, while simultaneously enhancing process efficiencies. Medium Reduced operating costs
Upskilling employ-ees and attracting technical talent By upskilling its existing workforce and attracting talent with sustainability and technical expertise for new technology products related to automation and the transition to a net-zero economy, LECO can enhance productivity and invest in a workforce with advanced skills. Medium,
Long		 Benefits to workforce management and planning
Streamlining regional processes LECO could continue work toward aligning its regional facilities, manufacturing pro-cesses, and products to reduce costs and complexity amidst rising input prices, tariffs, and potential logistics delays. Short,
Medium		 Reduced operating costs
Products and Services Infrastructure build In areas affected by natural disasters, LECO solutions can allow communities to rebuild critical infrastructure. Additionally, LECO supports the creation of diverse goods and services. As the world transitions towards a net –zero economy, the demand for advanced, low-carbon, manufacturing solutions will grow and there is an opportunity for LECO to capture a significant portion of the manufacturing market. Short,
Medium		 Increased revenue through new solutions to adaptation needs
Electric vehicles There is an opportunity for LECO to continue to invest in EVs, chargers, and their infra-structure as they will be in high demand in the net-zero economy and can significantly grow LECO’s sales and revenue. Short,
Medium,
Long		 Increased revenue through demand for lower emis-sions products and services
Meeting the evolving energy market LECO is uniquely positioned to offer products and solutions to the energy market, whether it moves toward renewables and hydrogen (e.g., wind turbine fabrication, EV charging, distribution pipelines). Short,
Medium,
Long		 Increased revenue through new solutions to adaptation needs
Sustainable inputs LECO has the opportunity to integrate low-emission resources, such as green steel, into its production processes, potentially yielding cost savings amidst rising carbon taxes. Short,
Medium,
Long		 Increased revenue through demand for lower emissions products and services
Recycled inputs LECO has the opportunity to enhance its utilization of recycled materials, particularly steel, and adopt recycling processes, thereby reducing costs, emissions, and advancing towards a circular economy. Short,
Medium		 Increased revenue through new solutions to adaptation needs