Information Disclosure Based on TCFD Recommendations
Information Disclosure Based on TCFD Recommendations
As a company involved with the manufacture of automobiles that directly emit CO2, we recognize our response to climate change as a serious management issue. Accordingly, in August 2021 the Group endorsed the recommendations of the TCFD. We will analyze the risks and opportunities climate change presents to the Group’s operations, reflect these in our management strategy and risk management, and appropriately disclose progress in order to contribute to a decarbonized society and aim for further growth.
Governance
We have established a Sustainability Committee that deliberates on issues related to all domains of sustainability, including our response to climate change, and manages sustainability for the Group as a whole.
Strategy
Measures to achieve carbon neutrality are essential to the realization of a sustainable society. It is expected that governments worldwide will implement energy regulations to reduce CO2 emissions and stronger laws, and it is also anticipated that various regulations related to automobiles will be strengthened. While tighter regulations could be a risk to the Group, addressing them by focusing our efforts on products and services with outstanding environmental performance, one of the Group’s strengths, could be an opportunity to expand business operations.
We believe that moving forward, promotion of Group products and services that comply with changing regulations and laws is not only an effective measure to help control global greenhouse emissions such as CO2 but also an opportunity for business growth, and we and have incorporated this belief into our business strategies.
Analysis of Risks and Opportunities Based on Climate Change Scenarios
A scenario analysis was conducted using the Group’s core automobile business (seats, interior components), and business risks and opportunities were identified. Matters arising from a transition to a decarbonized society, such as tighter regulations and technological developments or market changes, and matters arising from the physical impact of climate change, such as acute extreme weather and chronic temperature rises, are examples of risks and opportunities related to climate change.
The Group classified the causes for various changes in the external environment arising from climate change as “physical risks” or “transition risks” and qualitatively assessed the fiscal impacts using the three levels of large, medium, and small to identify major risks and opportunities. It also assessed the potential impacts of important risks and opportunities, and performed quantitative evaluations based on the assumed financial impact amount. The analysis examined the period up to 2050, and, in line with the Group’s long-term environmental targets, set 2030 as the medium term and 2050 as the long term.
Types of Risks and Opportunities Considered
| Physical risks |
|
|---|---|
| Transition risks |
|
| Opportunities |
|
Scenario Analysis
An analysis was conducted using a “4°C scenario” where the physical impact of intensifying extreme weather caused by climate change is apparent and a “1.5°C scenario” where the effects of a transition to carbon neutrality are evident.
| Assumed Scenario |
Reference Scenarios | Assumed State of Society |
|---|---|---|
| 4°C scenario |
|
|
| 1.5°C scenario |
|
|
Risks and Opportunities Related to Climate Change and Related Responses
The risks and opportunities judged as having a large or medium fiscal impact on the Group’s operations using a scenario analysis are as follows.
Principal Risks
| Risk Classification | Identified Risks | Medium- or Long-Term | Potential Financial Impact | Mitigation | Relevant Initiatives and Indicators | |
|---|---|---|---|---|---|---|
| Physical Risks (4 °C warming scenario) |
Acute | Potential decrease in sales due to suspension of operations at Group sites caused by extreme weather events such as typhoons, torrential rains, and hurricanes | Long | Impact: Large The potential decrease in revenue due to a shutdown caused by flooding is estimated to be up to 5 billion yen per affected site |
|
|
| Transition risks (1.5°C warming scenario) |
Government policies Laws and regulations |
Need to adopt renewable energy and increase capital investment due to stricter regulations | Medium | Impact: Large An estimated investment of around 7 billion yen will likely be required by 2030 for the transition to renewable energy, including the adoption of solar power technology |
|
|
| Higher operating costs due to widespread adoption of carbon taxes | Medium | Impact: Moderate By 2030, the Group could be paying around 700 million yen in carbon taxes for its emissions |
|
|||
| Technology | Higher R&D costs and greater capital investment to create low-carbon and electrified products | Medium | Impact: Large Higher R&D expenses are anticipated to make products with low environmental impact, to improve manufacturing technology, and to develop products for EVs, along with a corresponding increase in capital investment |
|
|
|
| Market | Higher raw material procurement costs due to carbon taxes and the need to adopt more eco-friendly materials | Medium | Impact: Large By 2030, the Group could be paying carbon taxes of 40 billion yen on transactions with suppliers |
|
|
|
| Potential drop in sales due to a lack of low-carbon and EV products | Medium | Impact: Large The market is expected to shift to electric vehicles and the need to reduce the product environmental impact will increase. If the Group is unable to provide products that meet customer needs, it could see a decline in sales of around 150 billion yen by 2030 |
|
|
||
Main Opportunities
| Risk Classification | Identified Opportunities | Medium- or Long-Term | Potential Financial Impact | Mitigation | Relevant Initiatives and Indicators | |
|---|---|---|---|---|---|---|
| Opportunities (1.5 °C warming scenario) |
Resource usage efficiency | Decrease in operating costs due to more efficient production processes | Medium | Impact: Moderate By 2030, energy conservation measures could yield a cost reduction effect of approximately 500 million yen |
|
|
| Products and services | Due to increased demand for low-carbon products, the Group will likely sell more seats for EVs and interior components made from eco-friendly materials | Medium | Impact: Large Enhancing product lines compatible for EVs will likely lead to the acquisition of new customers and the expansion of commercial rights. By 2030, the resulting increase in annual sales could reach 70 billion yen |
|
|
|
| Increased revenues due to sales of new products compatible with next-generation vehicles | Medium | Impact: Large By enabling product coordination with the entire vehicle interior, and by developing products that meet new requirements for next-generation vehicles, we will likely acquire new customers and expand our commercial rights. By 2030, this could result in an increase in annual sales of about 35 billion yen |
|
|
||
Risk Management
Risks and opportunities related to climate change and other sustainability issues are reviewed annually and deliberated upon by the Sustainability Committee. Major risks and opportunities are identified by classifying risks and opportunities arising from climate change as “transition risks” or “physical risks” and qualitatively assessing their fiscal impacts.
Identified major risks and opportunities that are physical risks (response to natural disasters) are addressed using targeted measures promoted by each functional division and region via the Global Risk Management Committee. Transition risk-related matters directly linked to business activity will be incorporated into medium-term business plans and business strategies and promoted in accordance with enacted policies. Items related to sustainability (long-term environmental targets, materiality KPIs, etc.) will be promoted by each functional division and region via the Sustainability Committee.
- Information gathering
- Information gathering regarding risks and opportunities related to climate change led by each functional division and region
- Identification of major risks and opportunities
- Evaluation and analysis based on gathered information, such as the degree of impact on operations and the possibility of occurrence, to identify the Group’s major risks and opportunities related to climate change
- Selection of policies and measures
- Creation of policies and measures for risks and opportunities that are deliberated upon by the Sustainability Committee and presented at a Board of Directors’ meetings as necessary once measures are passed at meetings of the Executive Committee
- Incorporation into strategies
and
implementation -
Identified major risks and opportunities will be handled as follows:
- Each functional division and region will promote measures to address natural disaster risks via the Global Risk Management Committee
- Business-related matters will be addressed through incorporation into medium-term management plans and business strategies
- Each functional division and region will promote measures to address sustainability via the Sustainability Committee
Metrics and Targets
In March 2021, the Group identified the eight material issues (materiality) it will prioritize to help contribute to the creation of a sustainable world, and it set KPIs and targets for 2030 for each material issue. The Group set long-term environmental targets that include a reduction in CO2 emissions compared to FY2020 by 50% in 2030 and 100% in 2050, and it is working to achieve them through means such as installing energy-conserving equipment and utilizing renewable energy at each location.