Endeavor to create a circular economy
Implementing the recommendations of the TCFD
In January 2019, the Mitsui Chemicals Group announced its endorsement of the TCFD* recommendations. As a chemical company, we take climate change seriously and will continue our efforts to better understand opportunities and risks that impact our businesses and disclose relevant initiatives.
From fiscal 2019 to fiscal 2021, we made the following efforts and disclosures as an initial support for the recommendations. Based on this foundation, from fiscal 2022 onwards we will proceed with proactive disclosure in line with the TCFD disclosure items (governance, strategy, risk management, metrics and targets), including support for the updated recommendations in October 2021.
*TCFD:
The TCFD was set up by the Financial Stability Board. In June 2017 it announced recommendations calling for financial institutions, corporations, and governments to disclose the business impacts of climate change in their financial reports.
Initial support for recommendations of the TCFD (until FY2021)
1. Assessing materiality of climate-related risks
Among the Group’s major businesses, we selected business areas that are vulnerable to climate change, and identified transition and physical risks and opportunities. We identified the most important risks and opportunities based on their likelihood, business impacts (human losses, financial impact, etc.), trends in international discussions, regions where we operate, examples of other companies, and other factors.
Assessment results (▲denotes risks; ●denotes opportunities）
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| Assessment items | Group-wide | Specific business areas | |
| Assessment scope | (1) Mobility, (2) Petrochemical feedstocks, (3) Agriculture, (4) Health Care, (5) Electricals and electronics, (6) Packaging, (7) Energy solutions | ||
| Physical risks/ opportunities |
Acute | ● Heightened risk of wind or rain damage (floods/storms) | |
| Chronic | ● Heightened risk of rising sea levels (high tides) ● Heightened risk of freshwater scarcity |
●● Changes in arable land and development of new agricultural technology (3) ●● Wider distribution of pests, weeds, and bacteria (3) ●● Wider prevalence of infectious diseases caused by climate change (4) |
|
| Risks/opportunities related to transition to low-carbon economy |
Policy and legal | ● Risks from introduction of, and increases in, carbon pricing ● Increase in litigation risks |
●● Impacts on business from shift to EVs (1)(5) ● Restrictions on use of synthetic chemical fertilizers (3) |
| Technology | ●● Uptake of renewable energies ●● Accelerated development of CCU technology and advanced recycling technology |
●● Uptake of biomass plastics (1)(2)(6) ● Faster transition to low-GHG emissions technology (2)(5)(6) |
|
| Market | ●● Spread of circular economy ●● Transition to renewable raw materials ● Calls for manufacturers to use renewable energy ● Higher prices for scarce resources due to shift to EVs and transition to a hydrogen-fueled low-carbon society |
● Decrease in auto manufacturing and sales volume owing mainly to increase in ridesharing and carsharing (1) ● Shortage of naphtha due to decline in oil production output (2) ●● Increased demand for renewable energy (7) |
|
| Reputation | ● Increased investor approaches | ||
*External data used include IPCC RCP2.6, RCP8.5, IEA B2DS, and SDS.
2. Identifying and defining range of scenarios
Selected scenario: "3-4°C world" scenario and a "1.5-2°C world" scenario
Business areasAll business areas (priority on the following areas due to significant impact on finances and GHG emissions)
Mobility business
✔ Mobility business sales revenue ratio
✔ Mobility business operating income before special items ratio
Petrochemical feedstocks business
✔ Related to fossil fuel and energy (electric power) which is essential for manufacturing products
✔ In-house energy production and product manufacturing account for approximately 75% of our GHG emissions
Time horizonPresent day to 2050 (references data through 2100 on physical risks and opportunities)
*External data used
Data on transition to low-carbon economy: IEA SDS, 2DS, B2DS, NZE2050, The Future of Petrochemicals
Data on physical aspects: IPCC RCP2.6, RCP8.5
Potential worlds
3–4°C world
Negative on decarbonization due to prioritizing of economic activity
◆ Implementation of current climate change policies only
- Introduction of carbon tax
◆ Catastrophic worsening of natural disasters caused by abnormal weather
◆ Expansion in demand for fossil energy and raw materials
- Rise in prices of coal, gas, and oil
- Rise in the price of fossil-fuel generated electric power
◆ GHG emissions to rise around 1.3 times (2050)
1.5–2°C world
Realization of carbon-free society being the top priority
◆ Implementation of ambitious climate change policies
- Large increase in carbon tax
- ICE sales suspended, switch to EVs
◆ Gradual worsening of natural disasters
◆ Shift to carbon-free energy and raw materials
- Renewable energies become mainstream
- Cut backs on chemical usage due to recycling
- Production of chemicals from bio-based and CO2 raw materials
◆ Carbon neutrality achieved (2050)
3. Quantifying business impacts
We assessed the impact of events related to risks and opportunities in possible scenarios and identified the most relevant business impacts for the Group.
Identified business impacts (qualitative)
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| Scenarios | Events | Business impacts (●denotes risks; ●denotes opportunities) |
| 3–4°C world | Catastrophic worsening of natural disasters | ● Increased damage to production sites due to flooding along coasts and rivers (property damage, decreased operating rate, supply chain disruptions) |
| Increased demand for products to adapt to global warming | ● Increased sales revenue of Rose Value™ products (contribute to disaster prevention/mitigation measures and prevention of infectious disease) | |
| 1.5–2°C world | Strengthened regulations to stimulate transition to a carbon-free society | ● Increased manufacturing costs and deteriorating profits due to taxes placed on fossil fuels by the introduction of a carbon tax |
| ● Avoiding deterioration in earnings by taking steps to prepare for a possible carbon tax and other regulations, and increasing sales revenue of products that comply with regulations | ||
| Market changes brought about by decarbonization | ● Increased raw materials costs due to decreased naphtha production volume driven by decreased consumption of fossil fuels | |
| ● Increased sales revenue of Blue Value™ products, which contribute to GHG emissions reduction across the value chain, arising from the use of biomass materials, non-fossil fuels, and renewable energy | ||
| Accelerating growth of the circular economy | ● Creation of new business opportunities by introducing the recycling (mechanical and chemical recycling) and CCUS technology that stakeholders are calling for | |
| Responding to demands from stakeholders | ● Declining valuation and reduced opportunities to secure investment due to insufficient response to demands by customers and investors to reduce GHG emissions | |
| ● Increasing corporate value and growing opportunities to secure investment due to proactive disclosure of information about how we are addressing climate change (strategy/progress) |
4. Identifying potential responses
Based on the results of the business impact assessment for the possible scenarios, we incorporated the carbon neutral strategy into VISION 2030.
Disclosure item for TCFD
1. Governance
The responsible officer for the Corporate Sustainability Committee is responsible for addressing climate change.
Policy, strategy, and planning to address climate change are discussed at the Corporate Sustainability Committee. Results of discussion are reported to the Management Committee. Particularly important matters are decided and supervised by the Board of Directors upon discussion at the Company-wide Strategy Committee and deliberation by the Management Committee. Furthermore, we newly established the Circular Economy CoE under the Corporate Sustainability Committee in April 2022. The Circular Economy CoE comprises the steering committee and three working groups (biomass, recycling, and climate change). It conducts detailed discussion on climate change and it is structured so that matters that should be discussed at the management level are raised to the Corporate Sustainability Committee.
Agenda items related to climate change at the Board of Directors (FY2021)
- Setting VISION 2030 (May 2021)
- Carbon neutrality roadmap (May 2021)
- Setting non-financial metrics in VISION 2030 (February 2022)
Management System > System and Responsible Officers
2. Risk management
The Mitsui Chemicals Group has established a company-wide risk management system. Each department assesses risks based on risk models and written procedures, and reports risk information to the Company-wide Strategy Committee, the Corporate Sustainability Committee, and other committees, depending on the type and severity of the risk. Each meeting body discusses how to respond to risks and notifies or advises each division of policy. The Management Committee receives risk information from across the company as input for making management decisions, and discusses and decides on action plans. Climate-related risks are also managed within this system. Regarding climate-related risks in particular, as part of risk management under VISION 2030 and the carbon neutral strategy, all divisions are obligated to identify short-, medium-, and long-term challenges (risks and opportunities) and to budget for the consideration and implementation of countermeasures, which are managed centrally throughout the company. Key climate-related risks that are identified are discussed in the Circular Economy CoE and are put on the agenda of the Corporate Sustainability Committee where necessary. These risks are incorporated into the risk management structure of the whole company.
3. Strategy
The Mitsui Chemicals Group believes that VISION 2030 and carbon neutral strategy are relevant to the transition plan to a low-carbon economy. Regarding the business impact identified by fiscal 2021, we have quantitatively estimated the impact that is expected to occur in the context of implementing measures toward VISION 2030, including the carbon neutral strategy.
▲Risk
3-4°C world
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| Risk classification | Events | Impact calculation target | Calculation approach | Impact | |
|---|---|---|---|---|---|
| Mid-term (2030) |
Long-term (2050) |
||||
| Physical risks | Catastrophic worsening of natural disasters | Increase in damage at production sites due to river and coastal flooding | Calculated asset damage at production sites due to flooding, taking into account the probability of occurrence. * FY2020 baseline. * Does not include operational impact. We plan to consider this in future. * Reference scenario: IPCC RCP8.5 |
¥5bn | ¥40bn |
1.5-2°C world
| Risk classification | Events | Impact calculation target | Calculation approach | Impact | |
|---|---|---|---|---|---|
| Mid-term (2030) |
Long-term (2050) |
||||
| Transition risks | Strengthened laws and regulations | Increased costs due to introduction of carbon tax | Carbon tax calculated based on predicted carbon price. * FY2020 baseline for GHG emissions. * Reference scenario: IEA WEO |
¥80bn | ¥160bn |
| Market changes | Increased cost of fuel and electricity | Cost of fuel and electricity calculated based on inflation rate. * FY2018 baseline for fuel and electricity costs. * Reference scenario: IEA WEO, EIA, and Agency for Natural Resources and Energy forecasts |
¥60bn | ¥70bn * FY2040 |
|
Minimizing risks
As for physical risks, while the mid-term asset damage from catastrophic worsening of natural disasters is not that great, we will assess its impact, including the impact on operations, and where necessary incorporate it into the Basic Strategy of VISION 2030, “Management and business transformation,” in order to respond.
As for transition risks, the business impact of increased costs due to introduction of carbon tax and increased cost of fuel and electricity will become large over the mid- to long-term. As part of carbon neutral strategy measures, we will promote low-carbon raw materials and fuels and energy efficiency by fiscal 2030, and push forward with introducing renewable energy. Furthermore, we will progress with steady reductions of GHG emissions through further considerations.
● Opportunities
3-4°C world
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| Opportunity classification | Events | Impact calculation target |
Calculation approach | Impact | |
|---|---|---|---|---|---|
| Mid-term (2030) |
Long-term (2050) |
||||
| Transition opportunities | Increased demand for products to adapt to global warming | Increased sales revenue of Rose Value™ products, which contribute to disaster prevention/mitigation measures and prevention of infectious disease | Set as a non-financial metric. * FY2021 Rose Value™ product results: sales revenue ¥330 billion, sales revenue ratio 20% * Reference scenario: the Group’s VISION 2030 |
Rose Value™ products sales revenue ratio 40% |
─ |
1.5-2°C world
| Opportunity classification | Events | Impact calculation target | Calculation approach | Impact | |
|---|---|---|---|---|---|
| Mid-term (2030) |
Long-term (2050) |
||||
| Transition opportunities | Increased demand for low carbon products and services | Increased products sales revenue ratio of Blue Value™ product, which contributes to reduction of GHG emissions | Set as a non-financial metric. * FY2021 Blue Value™ product results: sales revenue ¥290 billion, sales revenue ratio 18% * Reference scenario: the Group’s VISION 2030 |
Blue Value™ products sales revenue ratio 40% |
Blue Value™ products sales revenue ratio 70% |
| Preemptive response to carbon tax | Expense avoided by reducing GHG emissions | Reduced carbon tax calculated from reduction in GHG emissions and predicted carbon prices. * FY2013 baseline for GHG emissions (Scope 1 and 2: 6.15 million tons). * Reference scenario: the Mitsui Chemical Group VISION 2030, carbon neutral strategy, IEA WEO |
¥40bn | ¥160bn | |
Toward maximizing opportunities
Progress will be made on increasing the sales revenue ratio of Blue Value™ and Rose Value™ products and services under the VISION 2030 Basic Strategies of “Pursuing business portfolio transformation,” “Building solutions-based business models,” and “Bolstering circular economy initiatives.” Increase contribution to building a sustainable society through products and services by expanding the social issue perspective, including addressing climate change, to all of our businesses, thereby creating opportunities for the Group. In addition, reductions in GHG emissions are deeply related to expanding the revenue of the Group, and it is therefore necessary to not only execute the announced carbon neutral strategy measures, but continually implement further considerations.
As acquiring the three opportunities listed in the above table links into the growth of the Group, we set them as VISION 2030 business targets (non-financial metric) and manage their progress.
■Improving resilience
Based on the results of the impact assessment, we recognize the need to reflect the risk and opportunity perspectives listed here in the company-wide strategy. Moving forward, we will continue to roll out VISION 2030 and carbon neutral strategy, and aim to minimize risks and reverse risks to maximize opportunities in companywide strategy, including business strategy and site strategy. In doing so, we plan to improve the resilience of the Group.
4. Metrics and targets
The Group sets metrics and targets for use in managing climate-related risks and opportunities. We have positioned these as non-financial metrics and business targets for VISION 2030 and are managing their progress.
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| Classification | Metric | Target | FY2021 results |
|
|---|---|---|---|---|
| Mitigation | Reduction of Scope 1 and 2 GHG emissions | GHG emissions reduction rate (vs. FY2013) |
40% (FY2030) 100% (FY2050) |
21% |
| Maximizing avoided GHG emissions | Blue Value™ products sales revenue ratio |
40% (FY2030) 70% (FY2050) |
18% | |
| Adaptation | Contribute to disaster prevention/mitigation measures and prevention of infectious disease | Rose Value™ products sales revenue ratio | 40% (FY2030) | 20% |
Management System > Goals and Results
In addition, information in accordance with the climate-related metrics categories is as follows
| (1) GHG emissions |
|
|---|---|
| (2) Transition risks | Outlined in “Disclosure item for TCFD: 3. Strategy” |
| (3) Physical risks | Outlined in “Disclosure item for TCFD: 3. Strategy” |
| (4) Climate-related opportunities | Outlined in “Disclosure item for TCFD: 3. Strategy” |
| (5) Capital deployment |
|
| (6) Internal carbon pricing (ICP) | Set as 15,000 yen/tCO2e and IRR (c-IRR), which takes ICP into account used as decision-making material, in large-scale investments. Endeavor to create a circular economy > Management System |
| (7) Executive compensation |
|
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