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Better planet

Becoming Climate Positive

The IKEA vision is to create a better everyday life for the many people. Climate change threatens this for people today and for generations to come. Around the world people are increasingly experiencing the effects of climate change through severe weather and natural disasters like heatwaves, floods and fires. Recent years have been the hottest to date, global temperatures have reached more than 1.1°C above pre-industrial levels and this is already having a measurable impact on our business. We must act now, while securing a just transition so that nobody is left behind. 

IKEA is committed to the Paris Agreement and to limiting global temperature rises to 1.5°C, aiming to be climate positive by 2030 (see box) and to reach net-zero latest 2050.  

How will IKEA become climate positive?

IKEA is committed to becoming climate positive by 2030 by reducing more greenhouse gas emissions than the IKEA value chain emits, while growing the IKEA business.

This will be achieved by taking action across three areas: 

  1. Drastically reducing greenhouse gas emissions, to achieve at least a 15% reduction in absolute terms across the IKEA value chain from FY16 
  2. Removing and storing carbon through forestry, agriculture and products  
  3. Going beyond the IKEA value chain to contribute to additional reductions of greenhouse gas emissions in society. 

By reducing greenhouse gas emissions and removing and storing carbon (actions 1 and 2), IKEA aims to halve greenhouse gas emissions across the IKEA value chain by 2030 (from FY 2016).

Read more about the IKEA climate positive commitment and see the IKEA Sustainability Report FY21 for details of progress. 

Our approach

At Ingka Group, we make an important contribution to the IKEA climate positive commitment, by reducing the climate footprint in the IKEA value chain, as well as going beyond to enable the transition to a net-zero society.  

We have integrated climate-related matters into our governance and established a climate positive taskforce in FY21 to oversee climate action across our three businesses, IKEA Retail, Ingka Centres and Ingka Investments. Read more about our sustainability governance here.

We take a science-based approach to meet the IKEA climate positive commitment, with externally verified targets and data (see Data & Progress FY21), and we track the performance of our operations on a monthly basis.

We have set climate reduction targets that are aligned with a 1.5°C pathway and have been approved by the Science-Based Targets initiative (SBTi). These targets contribute to the overall science-based target set by IKEA, to reduce greenhouse gas emissions in absolute terms across IKEA value chain by at least 15% by FY30.

More details are included in the IKEA Sustainability Report FY21.

Cyckling outside an IKEA store

We are taking action in the following areas: 

  1. Reducing the climate footprint from IKEA retail operations, and customer and co-worker travel and home deliveries
  2. Contributing to a reduction in the climate footprint of IKEA products and food e.g. by promoting IKEA products, food and services that have a lower climate footprint.  
  3. Contributing to additional reductions of greenhouse gas emissions in society by going beyond the IKEA value chain.
  • Enabling customers to reduce their climate footprint at home e.g. through Clean Energy Services and other services and solutions. 
  • Accelerating the transition to a net-zero future in the retail sector by encouraging tenants at our Ingka Centres to adopt science-based targets and reduce their climate footprint.  
  • Making investments through Ingka Investments to accelerate the transition to a net-zero society.  
  • Partnering and advocating for policy and regulations that support a fair and resilient net-zero society. 

Inter IKEA Group is responsible for reducing the climate footprint of the IKEA range offer, including product use at home and supply chain-related activities. See the IKEA Sustainability Report FY21 for details.

Our climate footprint FY21

Food ingrediants
Product transports
Retail & Ingka Centres Operations*
Customer travel and home delivieries
Product use at home
Product End-of-life
Other emissions

Progress and challenges in FY21

Since FY16, the Ingka Group business grew by 17.6%, and yet we also achieved a 6.5% climate footprint reduction over the same period.  

Our climate footprint covers greenhouse gas emissions across our value chain, including scope 1, 2 and 3 emissions. The overall 6.5% reduction in our climate footprint from FY16 was driven by a 21.4% reduction in our scope 2 emissions and a 6.5% reduction in our scope 3 emissions. However, scope 1 emissions have increased by 31.3% from FY16, where we need to take more action to reduce heating related greenhouse gas emissions.  

Our progress over the past two years has been impacted by disruptions to our business caused by Covid-19. During both FY20 and FY21, we experienced disruptions in our supply chain, temporarily closed restaurants, impacts on production and the availability of ocean containers for transport.  Over the past year, total greenhouse gas emissions increased by 5.8% (from FY20). The main reason for this expected increase was due to retail sales beginning to recover from the pandemic.  

However, compared to pre-pandemic (FY19), our retail sales are higher this year but we have continued to make progress in reducing our climate footprint, which is 6.7% lower than in FY19 (see dotted line on chart).   

We recognise that more significant reductions are needed in the coming years to achieve the IKEA climate positive commitment.  

Solar-panels on a roof with workers

See our Data & Progress FY21 for a more detailed breakdown of performance data. 

Climate footprint – operations:

  • Greenhouse gas emissions from our own operations (scope 1 & 2) decreased by 6.6% from FY16.
  • 56.0% of energy (76.1% of electricity) we used worldwide was from renewable sources and this has enabled us to reduce our scope 2 emissions from electricity by 21.4% from FY16.
  • It has been more challenging to reduce scope 1 emissions, which mainly includes emissions from heating. Our scope 1 emissions increased by 31.3% from FY16.
co-workers putting up solar panels to an IKEA store

Climate footprint – travel and home deliveries

Relative emissions from customer and co-worker travel and home deliveries (per person) decreased by 10.5% from FY16 and absolute emissions decreased by 11.5% over the same time period.

  • In FY21, 11.0% of home deliveries were made using zero emissions vehicles. However, total emissions from home deliveries are 2.4 times higher than they were in FY16 due to an increase in online orders.  
  • Total emissions from co-worker travel decreased by 18.2% from FY16. 
  • Total emissions from customer travel decreased by 16.8% from FY16. Electric vehicle charging points are now available in all of our stores and centres which have parking. 
Charging an electric car

Climate footprint – IKEA products and food:

Emissions from IKEA products and food decreased by 6.0% from the FY16 baseline, despite total sales growth of 17.6% over the period. These scope 3 emissions accounted for 87.3% of our total climate footprint in FY21. 

Images of a breakfast

Greenhouse gas emissions beyond IKEA:

Customers can access our Clean Energy Services across 12 countries (11 countries FY20). We estimate that customers that purchased IKEA home solar in FY21 will save 186,600 tonnes of CO2e over the lifetime of the panels.

Two kids looking into a globe

Climate footprint: our operations

Greenhouse gas emissions from energy use in our own operations (scope 1 and 2) are responsible for around 1.7% of our total climate footprint. In addition, around 0.2% of our total climate footprint is from other scope 1 and 2 activities relating to our operations, including refrigerants and company owned vehicles. There are also other scope 3 emissions relating to our own operations covering waste, water use and some fuel and energy-related emissions (Data and Progress FY21). 

Our approach

To reduce our footprint, we’re focused on improving energy efficiency, switching to 100% renewable electricity, heating and cooling, increasing on-site renewable energy generation, reducing refrigerant leakages, minimising waste and water use in our buildings and opting for zero emission company owned, leased and shared vehicles. Read more about this in becoming circular section

How did we do in FY21?

Climate footprint – our operations

In FY21, we achieved a 6.6% reduction in the climate footprint from our operations (scope 1 and 2) compared with FY16 and a 3.5% reduction compared with FY20. This is mainly due to an increase in renewable electricity, which has led to a 21.4% reduction in our scope 2 emissions from FY16. It has been more challenging to reduce scope 1 emissions, which mainly includes emissions from heating. Our scope 1 emissions increased by 31.3 % from FY16. Although we are making progress, we will need to make more significant reductions to achieve our target of an 80% reduction by 2030.  

Since FY16, we reduced emissions by 2.7% in IKEA stores and 20.2% in Ingka Centres (common areas). However, emissions have increased by 33.7% in our distribution centres. One of the reasons for this increase is that we have expanded our distribution centres as more customers switch to online shopping but without securing the renewable energy required to reduce emissions.   

We achieved our biggest emissions reduction in Russia, Canada and Denmark due to an increase in the amount of renewable electricity we used in these markets. However, emissions increased in China, India and South Korea because we expanded our business but have not yet secured renewable energy supplies for new buildings. We are now focusing on securing renewable electricity in remaining countries, especially focusing on Australia, China, Ukraine, India and South Korea.  

In FY21, we also experienced an increase in scope 1 emissions in Europe, primarily due to a cold winter and increased ventilation requirements due to Covid. 

Photage of an IKEA store

Improving energy efficiency

We have annual energy action plans for every building. Examples of initiatives we are taking to improve energy efficiency include switching to LED lighting, upgrading building management systems, improving insulation and using energy recovery from heating and cooling. We have continued to expand our smart metering programme which gives store managers more advanced information about energy use and potential savings. For example, in Sweden an artificial intelligence solution has been implemented in some stores to optimize the HVAC (heating, ventilation, air conditioning) system. This reduced energy for heating by an average of 17.5%.    

In Gothenburg, Sweden, our new store will be our most energy efficient yet when it opens, with an energy consumption almost half that of our average store.  

Our total energy consumption increased by 7.1% from FY16 which has been due to a combination of factors including opening new customer meeting points and distribution centres, an increase in heating demand in FY21 (due to a cold winter in Europe) and greater ventilation requirements (due to Covid). 

Our progress over the past two years has also been impacted by disruptions to our business caused by Covid-19. Over the past year, our energy use increased by 7.9% from FY20, which has been partly due to retail sales beginning to recover from the pandemic. However, compared to pre-pandemic (FY19), our energy use in FY1 was 0.9% higher (see dotted line on chart). We therefore need to focus on improving energy efficiency in future years to reverse this trend. 

Potrait of co-worker smiling

Powered by renewable electricity

We’re aiming to consume 100% renewable electricity across all the countries where we operate by 2025. In FY21, 76.1% of the electricity we used was from renewable sources (66.6% in FY20). As a result, our climate footprint from purchased electricity was 66.2% lower than if we had purchased non-renewable electricity in the countries where we operate. We reached 100% renewable electricity in our retail and centres operations across 23 countries in FY21. 

We aim for as much electricity as possible to be produced on-site from solar panels. In FY21 6.6% of our electricity consumption was generated on-site.  

We also secure renewable electricity from off-site generation. Our off-site investments in wind and solar projects enable us to reduce our own value chain climate footprint and provided 47.1% of the electricity used in our operations in FY21. We aim to expand our renewable energy portfolio into more countries, including markets where renewable energy is less accessible. This will help us increase our use of renewable energy and support a broader transition in society. Read about our latest investments in investing with impact.

Solar panels on a roof

If on-site and off-site approaches aren’t possible, we purchase renewable electricity from a supplier that can guarantee the renewable source with renewable attribute certificates. This can help increase market demand for renewable electricity.  

We are trialling new technologies and tools to help us maximise our use of renewable energy and enable new flows of renewable electricity from our generating sites to our operations.

This includes a pilot with DNV GL and Becour connecting five of our wind farms in Finland to 14 IKEA stores and warehouses in The Netherlands.

The new IKEA Adelaide store is one of our first stores that will generate more energy than it consumes. It will export the excess power, providing low cost and clean energy to the local community. 

Renewable heating and cooling

We’re aiming for 100% renewable heating and cooling across all of our buildings by 2030. In our new stores and centres, we are working to fit renewable heating technology such as ground and air source heat pumps which run off renewable electricity, and biogas or biomass boilers. In FY21, we installed renewable heating in four of the six new stores that we opened (the stores without 100% renewable heating were in Ljubliana and Kiev). Today, we don’t use fossil fuels for heating in three countries, and one more country almost at fossil fuels free heating.  The majority of our cooling is generated using electricity and therefore this is covered by our target for 100% renewable electricity (see previous section). 

In FY21, greenhouse gas emissions related to heating increased by 29.5% since FY16 and 15.3% since FY20. This partly reflects an increased use of heating among existing stores, and that we did not install 100% renewable heating in two new stores that opened during the year. 

Building with trees

In the coming years, we expect to improve our performance by implementing further energy efficiency measures, and converting more of our buildings to renewable heating and cooling. Projects to convert buildings to renewable heating and cooling often take time from planning to implementation and will not always yield results in the form of reduced emissions within one reporting cycle.

However, we anticipate these measures will drive down emissions and get us back on track to achieve our target for 100% renewable heating and cooling by 2030.   

We use refrigerants as coolants in cooling systems and heat pumps. This will increase with the roll out of heat pumps. In FY21, we improved our data collection system to include data on greenhouse gas emissions from refrigerant leakages.

We are working towards replacing refrigerants with ones that have a lower global warming potential, and improving maintenance to reduce leakages of refrigerants into the atmosphere.  

Our new inner-city IKEA Westbahnhof store in central Vienna has solar panels and an ultra-efficient heat pump. 

Energy use by source in FY21

(percentage of total energy use)

  • Purchased renewable electricity [MWh] 47,5%
  • Consumed brown energy [MWh] 44%
  • Consumed on site generated renewable electricity [MWh] 4,5%
  • Consumed renewable district heating and cooling [MWh] 2,5%
  • Consumed renewable fuels (on site) [MWh] 1,5%

Electricity generated from Ingka Group wind power and solar by country FY21*

(MWh) % of total wind and solar generation capacity by country

  • United States 1,083,028
  • Finland 476,258
  • Canada 447,218
  • Germany 440,320
  • Poland 394,537
  • Romania 351,113
  • Sweden 336,463
  • France 178,053
  • Portugal 162,689
  • Lithuania 144,600
  • Russian Federation 26,267
  • United Kingdom 23,167
  • Ireland 19,397
  • Belgium 13,774
  • Spain 13,664
  • Italy 10,942
  • Neherlands 8,822
  • China 7,526
  • Australia 6,985
  • Others 23,602

*This covers off-site electricity generated from Ingka Group investments and electricity generated on our sites.

Vehicles used in our operations

We aim for all company owned, leased and shared vehicles used in our operations to be zero emission by 2025. This includes company cars, pool cars (for business travel) and forklift trucks/shunting trucks. We require all new vehicles to be electric wherever feasible. In some markets, we are now replacing company cars with a cash allowance. Although this decreases our scope 1 greenhouse gas emissions from company cars, it means we no longer control the type of vehicle purchased by co-workers 

fork lift with products

Climate footprint: travel and home deliveries

We want to be part of creating the net-zero cities of the future, with clean air and convenient and affordable zero emission transport.  

In FY21, 8.7% of our climate footprint was from customer and co-worker travel and home deliveries. This includes emissions from customers travelling to our stores, co-worker business travel and commuting, and the last-mile delivery of IKEA products to customers’ homes.  

How did we do in FY21?

Our science-based target is to reduce scope 3 greenhouse gas emissions from customer and co-worker travel and home deliveries by 50% per person by 2030 (from FY16). We achieved a 10.5% reduction in FY21 compared with our FY16 baseline and a 2.3% reduction since FY20. 

In FY21, 11.0% of home deliveries were made using zero emissions vehicles. Over the past year, there has been a significant increase in customer demand for delivery, partly due to store closures due to the Covid pandemic. This means that compared to FY20, we saw a 45.9% increase in emissions, and compared to FY16, total emissions from home deliveries are 2.4 times higher. We are not able to fully evaluate the impact on visitation and if the large share of deliveries will continue after the pandemic.   

Although home deliveries significantly increased in FY21, store closures due to Covid led to less travel by both co-workers and customers in the past two years. This contributed to an 18.2% reduction in total emissions from co-worker travel from FY16 and a 16.8% reduction in total emissions from customer travel from FY16.  

co-worker caring out IKEA products from car

Relative greenhouse gas emissions from home deliveries, customer travel and co-worker travel (percentage of baseline emissions)

FY16 baseline
FY30 goal (-50%)

Zero emission vehicles

We aim for all retail home deliveries to be made by zero emission vehicles by 2025. In FY21, the proportion of home deliveries by electric or zero emission vehicles increased to 11.0% (compared to 9.6% in FY20). We achieved limited progress against our target because total home deliveries continued to increase significantly (up 24.5% compared to FY20), and yet our ability to deploy more EVs was limited due to availability challenges, extended lead times, and manufacturing delays.  

With over 500 electric trucks now in use across 22 countries (19 countries in FY20), we have now tried and tested the technologies to progress towards our target and we’re focusing on scaling it up across more markets. We’ve already achieved 100% electric home deliveries in a number of cities including Amsterdam, Glasgow and Shanghai and 95% of all home deliveries in China were made using zero emission trucks.  

The total number of zero emissions deliveries increased by as much as 49.7% compared to FY20, yet the ongoing impacts of the pandemic meant we could not reach the proportional increase targeted. Nevertheless, we expect to significantly increase our electric truck fleet next year and get back on track to achieve our target by 2025. We have put in place central funding and guidance to support our countries to invest in their zero emission fleets and charging infrastructure and we require each market to set annual commitments and monitor progress.  

co-worker caring out IKEA products from car

Collaboration on zero emissions vehicles

Most zero emissions trucks are not suitable for delivering large furniture, so we’ve collaborated with seven truck manufacturers to design EVs that meet our specific requirements. We have tested electric prototype vehicles in 10 cities to date and further trials are planned. We are looking for vehicles to meet different needs and requirements in each market. For example, we’ve worked with Renault and MAN to develop vehicles for city deliveries that are large enough to transport furniture yet suitable for narrow city streets and quick curbside unloading. This project received CALSTART’s Blue Sky Award in November 2020. While electric trucks work well for short-distance deliveries, they are not yet suitable for deliveries over longer distances. We will continue to collaborate with others to find zero emission solutions for longer journeys.    

We are also working with others to support wider roll out of public charging infrastructure, including as a founding member of EV100, a global coalition to promote electric vehicles. We’re also a member of Drive to Zero, an initiative of the clean transport consortium CALSTART, and the Corporate Electric Vehicle Alliance in the US.  

Through Ingka Investments, we’ve made a minority investment in Fluid Truck, an app-based rental solution, which has an increasingly electrified delivery fleet across the US. We also invested in DST, the largest electric vehicle (EV) operations platform in China. See Better Company.

Co-workers stadning next to trucks

Reducing the climate footprint of customer and co-worker travel

We’re making changes to our stores and locations to encourage customers to walk, cycle and use public and low emission transport options, including new city formats that make IKEA more accessible by public transport.  

During the year we met our target to install EV charging points at all stores and centres (where parking is available) to help make travelling with electric vehicles more convenient and accessible. We are working to increase the use of renewable electricity for charging, and have a renewable energy supply for our electric charging points in Scandinavia and other locations.  

Many of our co-workers continued remote working due to Covid-19 restrictions which has contributed to an 18.8% reduction in co-worker emissions compared to pre-pandemic (FY19). We have started to trial a new car-pooling app across three markets to enable co-workers to reduce car journeys, commuting costs and associated greenhouse gas emissions. 

Co-worker charging car

Encouraging low emissions travels

Our new inner-city IKEA Westbahnhof store in central Vienna, for example, opened in August FY21, and is one of our first inner-city stores to offer a full range of IKEA products. The entire building is designed for pedestrians, users of public transport and cyclists, saving around 350,000 car trips a year. For larger items, the store offers same-day delivery via electric trucks, so customers can leave the car at home. Customers can also hire an E-Cargo bike delivery, provided by Michl’s bringt’s (a social enterprise) which helps long-term unemployed people to re-enter the labour market. Cargo bike rental is also available at city centre stores in Germany and Spain.

Climate footprint: IKEA products and food

The majority of our climate footprint is associated with the products we sell, the IKEA range. This includes supply chain emissions from the sourcing of raw materials, food ingredients, production and product transport and emissions associated with customer use of products and product end-of-life. Together these scope 3 emissions accounted for 87.3% of our total emissions in FY21. 

Inter IKEA Group has committed to reduce absolute emissions from home furnishing products and food by at least 15% by 2030 (from FY16). Accounting for the estimated growth over the same period, this is equivalent to cutting the average climate footprint per product by an estimated 70%. To read more on progress on how the total IKEA climate footprint is reduced, please see in the IKEA Sustainability Report FY21.

As the largest franchise retailer of IKEA products, we are supporting this target by:  

How did we do in FY21?

In FY21, scope 3 emissions from home furnishing products and food decreased by 6.0% from the FY16 baseline, despite total sales growth of 17.6% over the period.  However, emissions increased by 5.3% over the past year (from FY20), mainly due to the growth in sales as the business recovers from the Covid pandemic. Inter IKEA Group has developed climate roadmaps for key materials used in products including wood, metals, paper, textile furnishings and plastics in order to achieve the IKEA goal of a 15% reduction by FY30.   

colleagues smiles and put food on plate

Greenhouse gas emission from products and food - scoop 3.

FY16 baseline
FY30 goal (-15%)

(1000 tonnes CO2e)

Reduction beyond the value chain

As well as the changes we’re making in our own business, we want to go beyond IKEA and help to accelerate the transition to a net-zero society.

How did we do in FY21?

Clean Energy Services

We’re making it easier and more affordable for our customers to use and produce renewable energy, supporting the transition to a netzero society.We offer a portfolio of clean energy services in partnership with different service providers to meet the needs of a range of customers.These services are now helping customers reduce their climate footprint in 12 countries, up from 11 last year. See Better Homes for more details. We estimate that customers that have purchased IKEA home solar panels in FY21 will save 186,000 tonnes of CO2e over the lifetime of the panels. 

solar panels on roof

Investing for a net-zero society

Creating a sustainable future is one of our three strategic priorities for Ingka Investments alongside financial resilience and business development. We support the transition to a net-zero society by investing in projects in areas such as renewable energy generation, zero emissions deliveries, circular flows and forestry. We have invested EUR 2.5 billion in renewable energy since 2009 and aim to invest EUR 6.5 billion by 2030. 

wind turbines

Working with tenants at our Ingka Centres

We are also working to accelerate the transition to a netzero future in the retail sector by encouraging tenants at our Ingka Centres to adopt science-based targets and enabling tenants to reduce the climate footprint coming from their operations and customer travel. 

Shopping mall

Working in partnership with others

The scale of the climate crisis means we can only achieve our climate positive commitment by engaging with others and taking action together – leading by example, collaborating to develop solutions, advocating for policy changes and inspiring further action.  

We participate in various initiatives to drive the transformational change needed to meet the Paris Agreement objective to limit global temperature rises to 1.5°C. 

Collaborations in FY21 include:  

  • Our CEO Jesper Brodin is co-chair of the WEF Alliance of CEO Climate Leaders. 
  • Our Head of Climate and Energy Karol Gobczynski is a member of the Net-Zero Science Based Targets initiative Experts Advisory Group, as well as a member of the RE100 Advisory Committee. 
  • We have partnered with a number of other retailers (H&M Group, Kingfisher plc and Walmart) to launch the Race to Zero Breakthroughs: Retail Campaign. This aims to accelerate a movement in the retail industry to drive climate action and encourage other retailers to set out their plans to achieve 1.5°C aligned carbon reduction targets.  
  • We are a member of the UK Net Zero Roadmap for Retail developed by the British Retail Consortium.  
People shaking hands
  • We have endorsed the Marrakesh Partnership for Global Climate Action Pathway for the retail sector. 
  • We are members of RE100 (which we co-founded in 2014) and EV100 (which we co-founded in 2017). 
  • We participate in The We Mean Business Coalition, a global coalition working to take action on climate change and have supported their asks regarding energy and transport. 
  • In FY21, we started a three-year partnership with C40, a network of nearly 100 of the world’s leading cities committed to take bold climate action and lead the way towards a healthier and more sustainable future. The partnership will focus on three projects: zero emissions, clean construction and reinventing cities.  

Together with our partners, we have supported the following advocacy initiatives in FY21:  

  • In September 2020, Ingka Group and Inter IKEA Group joined with 170 business leaders to call on the European Union (EU) to set a 55% greenhouse gas reduction target. 
  • In April 2021, Ingka Group signed a call to action from the EU to the United States of America (US) entitled “Let’s meet our ambitions on both sides of the Atlantic to fight against climate change”. 
  • In June 2021, the WEF CEO Climate Leader Alliance launched a call to action from the CEOs of the Alliance to G7 and other world leaders to “Support Bold Net-Zero Commitments”. 

Climate risks and net-zero opportunities

We are a purpose-led company and are driven by our vision to create a better everyday life for the many people. Our financial independence, resilience and unique ownership structure allow us to take a long-term view of our business, investing for future generations, caring for people and planet and looking far beyond 2050. Therefore, understanding the impact of climate change on our business, understanding the costs of mitigating actions and capturing net-zero transition opportunities is of the utmost importance to us. This year we once again report on our approach in line with the recommendations from the Taskforce on Climate-related Financial Disclosure (TCFD).

“We think in generations and not financial quarters. The climate action we are taking in our business and our advocacy for achieving a net zero society by 2050 is an investment to protect the long-term future of society and our business. We know the costs to people, planet and our business will be far higher if society continues to pursue current policies and does not transition to net-zero”

Understanding our climate-related risks and net-zero opportunities

In FY21, we updated our assessment of climate-related risks and net-zero opportunities in line with the recommendations of the Taskforce on Climate-related Financial Disclosure (TCFD). Our first assessment, which was carried out in FY19, gave us a better understanding of the strategic and financial implications for our business relating to buildings, energy and transportation. It confirmed that there are both strategic and financial gains that can be made from pursuing our commitment to become a climate positive IKEA, e.g. by continuing to improve energy efficiency in our buildings, investing in renewable energy generation, and achieving zero emission home deliveries.

Our assessment in FY21 focused on a higher number of our material climate-related risks and net-zero transition opportunities than in FY19. The scenario analysis was also updated based on the most recent climate models and the latest scientific understanding of the impacts of climate change. We used the following two scenarios developed by the NGFS* (Network for Greening the Financial System) that span different temperature outcomes and pathways:

solar panels on roof
  • Net Zero 2050 scenario (RCP 2.6): The world reaches net-zero by 2050, and the global temperature increase is limited to 1.5 degrees celcius by 2100 due to the immediate and smooth introduction of climate policies across the world and fast innovation. This scenario was chosen because it reflects the net-zero pathway many governments and companies have already publicly committed to. It leads to high transition risks including expected future regulation from the EU, which is our biggest market.
  • Current Policies scenario (RCP 8.5): The global temperature increases by more than 3 degrees celcius by the end of the century because the world fails to introduce additional climate policies beyond what is legislated today and innovation is slower than in the Net Zero 2050 scenario. This scenario was chosen because it leads to higher physical risks.

* Read more about the scenarios: NGFS Scenarios Portal.

Our approach 

Our assessment of climate-related risks and net-zero opportunities included the following five steps:

Step 1. We produced a long-list of climate-related risks and opportunities. The assessment built on our internal risk assessment, which includes expert input from relevant group functions and business units. 

Step 2. We undertook a qualitative materiality assessment of the long-list of climate-related risks and opportunities and placed these on a heat map based on their likelihood and impact.  

Step 3. We prioritized the identified risks and opportunities based on the materiality assessment and developed a short-list of risks and opportunities with high likelihood and impact. We considered both opportunities from mitigating the identified risks as well as business opportunities with imminent growth potential that are already included in our People & Planet Positive strategy.  

Step 4. We identified the financial impacts of the risks and opportunities on our short-list, including costs and revenues where data was available. This was based on a combination of our internal financial and operational data and external data on scenarios. 

Step 5. We have reviewed the resilience of our current business and climate-related strategy in light of the risks and opportunities, and this will feed into the development of short- and mid-term actions. 

How to make our business thrive in a net-zero society

The scenario analysis shows that there are some major potential costs* to our business from climate change in both scenarios. At the same time there are significant opportunities for our business to thrive in a net-zero economy, by mitigating risks and harnessing new business opportunities. The scenario analysis highlights the importance of reducing greenhouse gas emissions in line with the IKEA climate positive commitment by 2030 in both scenarios.

In our scenario analysis we modelled the potential financial impact of three categories: energy and emissions, transportation** and evolving business models. We also considered (but have not yet fully quantified) physical risks to buildings and risks in the upstream IKEA supply chain, and a next step would be to quantify these more comprehensively.

*The financial impacts are modelled based on the assessed risks and opportunities under the two scenarios in 2050 as applied to our current business footprint and profitability. As such, they do not contemplate the potential growth and change in our underlying business by 2050.

**Covers transportation within the scope of Ingka Group – transport from warehouses to stores and home deliveries to customers.

“We are likely to face increased costs under both climate change scenarios if no action is taken to mitigate transition risks. However, with our ambitious climate action targets, we expect to mitigate these costs while playing our part to limit the costs to planet, people and society to 2050 and far beyond. Working towards a net-zero society is not only the right thing to do - it is the only sustainable business model for generations to come.”

Summary of scenario analysis

Energy and emissions and Transportation: Costs will increase in both scenarios, with a higher increase in the Net Zero 2050 scenario reflecting the increase in regulation, significant infrastructure investment, carbon pricing and energy efficiency investments that is needed.  Without mitigation, this could have a cost impact of around EUR 145 million in the Net Zero 2050 scenario and around EUR 30 million in the Current Policies scenario*.  However, delivering on our ambitious targets for renewable energy, zero emissions delivery and energy efficiency will completely mitigate these cost increases in both scenarios.  Furthermore, our wind and solar renewable energy businesses will likely generate better results (unquantified) in the Net Zero 2050 scenario than Current Policies.

Physical risk: In both scenarios extreme coastal and riverine flooding could lead to annual costs for the Ingka Group of roughly EUR 30 million by 2050*. In Current Policies this risk in 2050 is slightly worse than Net Zero and is expected to be significantly worse by 2100. In addition, unquantified impacts from extreme weather events like pluvial flooding, heatwaves and storms are expected to increase in frequency and would be worse in a Current Policies scenario.

Evolving business models: Up to 18% of our customers are willing to make a ‘strong effort’ to make future changes to their behaviour to help reduce climate change. If we fail to meet expectations, we could risk losing significant sales and profitability.

co-worker installing IKEA products

We believe that the opportunity here is greater than the risk, and that scalable and disruptive business models promoting circular resource use and renewable energy for customers have huge potential.

Supply chain: There are material potential impacts on our business related to resource scarcity and damage to the ecosystems we rely on. This could affect the costs and availability of raw materials such as wood and cotton in the IKEA products we sell.

We have not yet quantified the financial impact of this on our business. However, third-party independent land use models indicate that wood prices are expected to increase under both scenarios, while cotton prices are expected to decrease slightly.

For a more detailed overview of the risks and opportunities assessed, see the table below.

* Based on our current business footprint.

Our approach to managing climate-related risks and net-zero transition opportunities

Our approach to managing climate-related risks and net-zero transition opportunities  

Governance We have integrated climate-related matters into our governance. Read more about our sustainability governance. To ensure we make progress on our climate targets, a Climate Taskforce was established in FY21 to coordinate the integration of climate-related matters at a strategic and operational level.  

Strategy As the largest IKEA retailer, we contribute to the IKEA climate positive commitment. We assess climate-related risks and decarbonisation opportunities and use the findings to influence strategies and short- and medium-term business planning (see above). 

Risk management Climate-related risks are integrated into the Ingka Group risk management framework. Read more about how we manage sustainability risks.

Metrics and targets We’ve set ambitious science-based targets to reduce our scope 1 and 2 emissions in absolute terms and to reduce relative emissions from our indirect (scope 3) travel and transport footprint. IKEA has set science-based targets to reduce emissions in absolute terms for the IKEA product range. We regularly track climate change metrics. See Progress against targets.

Read more about our movements here