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Responding to Climate Change

Risks and Opportunities Related to Climate Change

Risks and Opportunities Related to Climate Change

Risks and Opportunities Related to Climate Change

As for the financial impact on the Group, additional costs will be incurred based on GHG emissions, such as when policies and regulations on climate change are strengthened and carbon pricing systems are introduced or enhanced. Furthermore, if we fail to keep pace with the global shift to decarbonized societies, this could invite a decline in our corporate value due to lost sales opportunities, etc. The world is rapidly moving to achieve carbon neutrality under the Paris Agreement. We also intend to rapidly respond to these changes in the social environment and
continue to provide new value.Specifically, we have defined GHG reduction targets. We will steadily reduce the amount of GHG emitted from Group business activities by introducing energy-saving equipment and increasing our use of renewable energy. Furthermore, in order to improve the market competitiveness of Group products, we will actively
enhance our production processes, develop environmentallyfriendly products, and develop technologies such as CCUS* for reducing our environmental impact. 

  • CCUS: Carbon dioxide Capture, Utilization and Storage

In our company-wide risk management activities, we manage physical water risks, including damage caused by acute and chronic risks such as torrential rains, floods, storm surges, and
droughts, which are considered to be related to climate change.
Concerning transition risks, we expect an increase in demand for technologies, products, and services that contribute to energy saving and GHG emissions reductions due to the tightening
of government policies regarding climate change. We envision this as providing more significant business opportunities. The Group takes initiatives such as the development of materials,
products, and technologies that contribute to decarbonization, the development and promotion of the use of renewable energy such as geothermal power, participation in projects pushing forward demonstration experiments or studies into suitable locations related to CO2 capture and storage, and conservation
activities for the forest land we own. Through these initiatives, we aim to create both economic and social value.

Scenario analysis

In March 2021, the Group established and analyzed scenarios to ascertain the impact of climate change on the Group's business operations (risks and opportunities) and consider measures for reducing risks and securing opportunities.
Energy Panel will continue to consider strategic measures to address risks and opportunities for the Group due to climate change, which identified from the scenario analysis, in incorporating them into our medium and long-term management strategies and risk management.

Process for identifying risks, opportunities and response measures

Establish scenarios where climate change is progressing, analyze business impact and consider measures to reduce risk and secure opportunities

Identify risks and opportunities Identify transition risks and opportunities and physical risks as climate change risks and opportunities relating to business operations
Identify key risk and opportunity factors Consider measures, indicators and targets Identify transition risks and opportunities and physical risks as climate change risks and opportunities relating to business operations
Analyze impact on business operations Identify risks and opportunities with a high degree of importance
Analyze the degree of impact of key risks and opportunities on business operations In analysis and evaluations, we refer to scenario data for temperature increases of 2℃ and 4℃
  • [Reference scenarios] International Energy Agency (IEA) Sustainable Development Scenario (SDS) 2℃ Scenario (2DS)Intergovernmental Panel on Climate Change (IPCC): Shared Socioeconomic Pathways (SSP), Representative Concentration Pathways (RCP), etc.
Consider measures, indicators and targets Consider measures to reduce risks and secure opportunities
Set greenhouse gas emission reduction targets as monitoring targets

Scenario analysis – World as envisaged in 2030–2050

World as envisioned in analysis

2℃ Scenario (sustainable society) 4℃ Scenario (society in which things are allowed to take their course)
  • Average temperature increase is limited to below 2℃ until the end of the century, and ambitious political policies and environmental technology innovations are implemented to achieve sustainable development.
  • Although countries implement political policies aimed at achieving targets in line with the Paris Agreement, the level of international cooperation between countries, development of environmental technologies and shift in energy sources is insufficient, and the average temperature increases by around 4℃ until the end of the century.
  • In terms of social changes accompanying the transition to decarbonization that will impact business operations, we envisage the world as follows.
  • This scenario envisages the world as follows, where measures to mitigate climate change are unsuccessful, and global warming is allowed to progress and take its course.
[World as envisaged]
  • Carbon price setting and price rises globally
  • Advancement of the transition from fossil fuels to renewable energy
  • Advancement of modal shift and EV shift
  • Increase in demand for use of public transportation and vehicle sharing
  • Preferential selection of decarbonized products by users
  • Transition to a recycling-oriented society and an increase in waste recycling rates
  • CO2Establishment and practical application of technologies for the recovery, storage, and effective use of CO2
[World as envisaged]
  • Dependency on fossil fuels, increase in energy costs
  • Remarkable economic growth of emerging and developing countries
  • Slowdown in shift to modes of mobility with low CO2 emissions
  • Intensification of wind and water-related disasters and increase in disaster-related waste
  • Increasing severity of water stress and heat stress

Scenario analysis – Analysis themes

Analysis theme Description of analysis Businesses covered by analysis
  1. Change in direct burden of carbon taxes
  • Ascertain costs relating to implementing initiatives to reduce greenhouse gas emissions toward a global temperature increase of less than 2℃
  • Consider capital expenditure toward reduction based on cost differences, etc., according to propriety of targets for reducing greenhouse gas emissions
Common to all businesses
  1. Change in water-related disaster risks at business locations
  • Ascertain financial impact of flood risks due to river flooding and tidal surges at Company business locations
Common to all businesses
  1. Change in demand for Company products due to EV shift
  • Consider change in demand for the Company's electronic materials toward a global temperature increase of less than 2℃
Advanced Products Business
  1. Change in demand for Company products relating to modal shift, EV shift and reducing weight of transportation devices
  • Ascertain demand and market growth potential for products relating to the Metalworking Solutions Business based on forecasts for the transportation sector shifting to low carbon, and use of modes of transportation in the 2℃ and 4℃ scenarios, etc.
Metalworking Solutions Business
  1. Change in demand for E-Scrap recycling due to the transition to a recycling-oriented society
  • Ascertain demand and market growth potential for E-Scrap recycling based on forecasts for the amount of E-Scrap that will be generated, etc.
Metals Business
  1. Change in costs caused by carbon pricing policies
  • Ascertain the extent of indirect impact on the Company's business costs, etc., from the burden of carbon taxes at upstream business enterprises
Cement Business
  1. Change in demand for acceptance and disposal of disaster-related waste
  • Assess changes in demand for acceptance and disposal of waste, based on changes in the amount of disaster waste generated due to climate change
Cement Business
  1. Change in demand relating to home appliance recycling
  • Ascertain demand and market growth potential for the home appliance recycling business in the 2℃ scenario accompanying the widespread adoption of alternative fluorocarbons and temperature increases, etc.
Environment & Energy Business
  1. Change in demand for renewable energy
  • Ascertain demand and market growth potential for the renewable energy business in the 2℃ scenario accompanying high-impact changes in the external environment.
Environment & Energy Business

Scenario analysis – analysis results (outline)

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1.Change in direct burden of carbon taxes (common to all businesses)

Risk factor: introduction and toughening of carbon pricing systems (operating costs)

Envisaged world and business impact

Increase in production costs due to introduction and toughening of carbon pricing systems

  • Increase in energy costs due to a toughening of taxation with respect to greenhouse gas emissions and an increase in electric power prices
  • Increase in cost of procurement for green power certificates and emission trading costs
  • Total energy costs will increase by a factor of around 1.59 in comparison with fiscal 2020 by fiscal 2031, and 1.63 by 2051
Impact analysis

Carbon pricing will be a factor contributing to cost increases for the Company The impact of carbon pricing will have an impact on society overall. If the passing on of these costs to the price of Company products does not progress then there is a risk that it may lead to a decrease in earnings.

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Future strategy and response
  • Introduce low-temperature firing technologies for cement manufacturing, consider technologies for recovering CO2 emitted from factories, and pay close attention to the viability and cost aspects of innovative technologies such as CCUS
  • Promote energy saving measures and consider the possibilities of transitioning to electrification and alternative fuels
  • Reduce greenhouse gas emissions by 17% by fiscal 2031 (comparison with fiscal 2014)
  • Advance the introduction of renewable energy toward reducing electric power-derived emissions

2.Change in water risks at business locations (common to all businesses)

Risk factor: Increase in flooding, tidal surges, droughts and other water-related risks

Envisaged world and business impact

Increase in the amount of damages due to the increase in the frequency of natural disasters worldwide

  • Increase in property damages and damages from temporary closures, etc., due to the increase in the frequency of disasters
  • The amount of property damage at sites in Japan with a high risk of river flooding will be around 1.1 times the current level in fiscal 2051, and around 4 times the current level in fiscal 2086. At overseas sites (Thailand), property damage will be around 2.8 times the current level in fiscal 2051, and around 25 times the current level in fiscal 2086.
Impact analysis

The increase in damages due to disasters will be a factor contributing to cost increases for the Company If global temperature rises are not suppressed and the world heads toward a 4℃ scenario, depending on the location of the site, there is a risk of serious impact on operations and supply chains.

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Future strategy and response
  • Short-term risks will be assessed using Aqueduct (a water risk assessment tool developed by the World Resources Institute (WRI)), and regular interviews will be conducted to ascertain the detailed water risk situation at each individual site and respond to high-risk areas in order.
  • Appropriate measures against medium and long-term risks will be implemented by keeping tabs on the latest forecast information at IPCC, etc., and based on assessments of water disaster risks in the Company and its supply chain.

3.Change in demand for Company products due to EV shift (Advanced Products Business)

Opportunity factor: Increase in EV sales

Envisaged world and business impact

Rapid increase in demand for EV-related products aimed at decarbonization

  • Overall automobile sales volume will increase toward fiscal 2031, and demand for terminals and connectors for use in automobile applications will increase by a factor of around 1.6 by fiscal 2031 (in comparison with fiscal 2020) and around 2.1 by fiscal 2051.
  • EV automobile sales will increase by a factor of around 22 by fiscal 2031 in comparison with fiscal 2020.
Impact analysis

The major increase in EV sales is expected to lead to a major increase in demand for the Company's copper & copper alloys and electronic materials products, etc. Drawing in demand by strengthening the production system for related products will offer opportunities to expand sales.

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Future strategy and response
  • As of fiscal 2031, the Company aims to increase sales volume of copper components for new HVs and EVs by a factor of least 1.3 in comparison with fiscal 2020, and next-generation vehicles and environmentally friendly products by at least three times in comparison with fiscal 2020.
  • We will contribute to the transition to a decarbonized society by making capital expenditures and developing products, etc., for constructing a supply system that can meet the rapidly expanding demand for products for use in EVs.

4.Change in demand for Company products relating to modal shift, EV shift and reducing weight of transportation devices (Metalworking Solutions Business)

Risk factor: Rapid changes in the market for Advanced Materials & Tools accompanying modal shift, etc.

Envisaged world and business impact

Decline in demand for cutting tools for engines due to the increase in the percentage of EVs

  • Significant increase in EV sales and increase in usage rate for lighter materials
  • Production of engine-equipped vehicles is expected to decrease (by a factor of 0.76–0.96 times by fiscal 2031 in comparison with fiscal 2020), and sales of cutting tools for engines and transmissions are expected to decrease.
Impact analysis

With the expected increase in demand for tools for use on hard-to-cut materials, accompanying the expansion of the electrification and weight reduction markets, reviewing product composition and taking in demand could provide opportunities to increase sales. At the same time, there is a risk that sales of cutting tools for engine-equipped vehicles—a current flagship product—will decline.

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Future strategy and response
  • We will contribute to the transition to a decarbonized society by developing and supplying products that meet growing demand (for the 2℃ scenario world), such as EV battery-related products and tools for difficult-to-cut materials.
  • In the automotive product market we will continue to focus on the trend of EV shift, as trends in the growth or decline of product demand vary depending on the type of power source used in the vehicle. We will also continue working to develop new markets as alternatives to the automotive industry.

5.Change in demand for E-Scrap recycling due to the transition to a recycling-oriented society (Metals Business)

 Opportunity factor:Increase in demand for E-Scrap recycling

Envisaged world and business impact

Increase in demand for recycling of scrap electronic appliances accompanying economic growth of various countries

  • Volumes of E-Scrap from scrapped automobiles will increase due to the increase in global vehicle sales (increase by a factor of 1.1 by 2030 in comparison with fiscal 2020), increase in percentage of EVs, and growth of GDP
  • Demand for valuable metals will increase further as a result of the increase in demand for electronic devices due to the advancement of digitalization
Impact analysis

The volume of E-Scrap generated globally is expected to increase to 142% by 2030 in comparison with fiscal 2020. Increasing the volume of E-Scrap that the Company can process by augmenting the Company's recycling capabilities will create an opportunity to increase sales.

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Future strategy and response
  • The Company will contribute to build a recycling-oriented society by augmenting its waste handling capabilities, exploring ways of expanding opportunities for accepting waste through technology development, for increasing the sophistication of pretreatment, and focusing on E-Scrap recycling operations.
  • Going forward, we expect to see a decline in the amount of PGM contained in electronic circuit boards and an increase in sales of EVs in Japan. We will therefore continue to focus on the surrounding environment relating to valuable metals.
  • PGM: platinum group metals

6.Change in costs caused by carbon pricing policies (Cement Business)

Risk factor: Introduction and toughening of carbon pricing systems (procurement and sales)

Envisaged world and business impact

Increase in raw material procurement and cement transportation costs due to introduction and toughening of carbon pricing systems

  • Increase in cost burden on the Company from carbon pricing at upstream suppliers passed on to the Company
  • Increase in transport costs for cement raw materials due to changes in energy costs, etc.
  • Decline in cost competitiveness due to imported products from countries with low carbon pricing (until adjustment measures are applied)
Impact analysis

Introduction and toughening of carbon pricing will be a factor contributing to cost increases for the Company. At the same time, since this impact will affect the industry overall, in order to maintain the competitiveness of the Company's products it will be necessary to suppress carbon price cost burdens by steadily advancing measures for achieving greenhouse gas emission reduction targets.

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Future strategy and response
  • Comprehensively consider measures for energy saving and thermal energy conversion in manufacturing processes with a view to the reduction of risks relating to raw material procurement
  • Work to reduce CO2 emissions by reviewing and revising transportation processes (mode of transportation, procurement channels, etc.) from the standpoint of the cargo owner
  • Focus on policy trends in carbon border adjustment mechanisms both in Japan and overseas, and respond as an industry

7.Change in demand for acceptance and disposal of disaster-related waste (Cement Business)

Opportunity factor: Increase in demand for disposal of disaster waste accompanying water-related disasters

Envisaged world and business impact

Increase in water-related disasters such as floods, landslides / mudslides and tidal surges accompanying climate change

  • Rainfall and flood water volumes will increase, the scope of water-related disasters will expand, and the depth of inundation will increase
  • The frequency of flooding in Japan will increase by around four times under the 4°C scenario, and by around twice under the 2°C scenario.
  • Disaster waste will increase as a result of the increase in water-related disasters
Impact analysis

Given the regionality of water-related disasters, volumes of disaster waste produced and unsteady timing with which disasters occur, the impact on business operations is expected to be minimal. At the same time, as the threat of water-related disasters is expected to increase, there will be an increase in opportunities for the cement industry (which has the capabilities for accepting and handling disaster waste) to emphasize the significance of its existence, and contribute to society.

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Future strategy and response
  • Moving forward, we will continue to fulfill our role in society by catering to requests for disaster waste disposal processing services.
  • We will work to develop de-chlorination technologies to expand processing waste with high chlorine content*
  • In addition to expanding the range of waste types we are able to process, we will continue to contribute to reducing CO2 emissions by expanding our use of thermal energy alternative waste.
  • Based on the national strategy measure of enhancing resilience, we will maintain and continue to provide a stable supply of products catering to public works project needs relating to disaster readiness and reduction.
  • High concentrations of chlorine cause problems in manufacturing processes, such as blockage of pre-heaters for cement raw materials, and also affect quality.

8.Change in demand relating to home appliance recycling (Environment & Energy Business)

Opportunity factor: Increase in demand for home appliance recycling

Envisaged world and business impact

Increased frequency of replacement of home appliances with energy-saving appliances due to global warming and rising energy costs

  • Progressive degradation of air conditioners due to prolonged use, and increase in number of air conditions owned by each household
  • Increased frequency of replacement due to low-carbon regulations and increasing energy costs (increase in volume of waste home appliances)
  • Increase in home appliance recovery rate due to toughening of recycling regulations
Impact analysis

An increase in volume of waste home appliances is expected due to factors such as temperature increase, change in number of households, and toughening of carbon regulations and recycling regulations This will be accompanied by an increase in the volume of waste home appliances processed of by the Company, which will present an opportunity for increasing sales. (209% in fiscal 2051 in comparison with fiscal 2020)

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Future strategy and response
  • We will seek to expand business operations through the automation of facilities aimed at increasing the number of home appliance units recycled, and by working to improve processes for increasing the value of recovered appliances.
  • In particular, we will focus on market trends given the growing market scale for air conditioners and flat-panel TVs, for which the increase in the amount of appliances processed is expected to be particularly great.
  • We will also create new recycling operations—including recycling of lithium-ion batteries and solar panels—while at the same time focusing on trends in overseas markets.

9.Change in demand for renewable energy (Environment & Energy Business)

Opportunity factor: Spread and increase in demand for renewable energy

Envisaged world and business impact

Medium to long-term expansion of the renewable energy market aimed at building a net-zero society

  • Due to the state of widespread popularization and demand for renewable energy, environment value ranges between 1.3 and 1.4 yen/kWh.
  • Although we expect to see mass widespread adoption of renewable energy with costs reduced through technology development, a decline in renewable energy purchase preference systems, and a fall in the unit selling price of electric power, sales will increase due to the increased demand for renewable energy.
Impact analysis

While unit electricity prices and non-fossil fuel certificate prices will fluctuate due to environmental policies and technological advances, the demand for renewable energy itself will increase, presenting an opportunity for us to expand our renewable energy business operations. (Power generation: 286% in fiscal 2051 in comparison with fiscal 2020)

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Future strategy and response
  • In order to increase the total output of renewable energy power plants to 533GWh by fiscal 2031, we will focus on augmenting the power output of existing power plants, and surveys and development of new geothermal and hydroelectric power plants, including overseas expansion.
  • We will work to reduce the cost of power generation by focusing on trends in solar and wind power generation R&D, the state of their widespread adoption, and unit electricity prices.

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Water-related management

The vast majority (approx. 91%) of the water we consume at the Mitsubishi Materials Group is seawater used as cooling water. Consumption of fresh water (such as industrial water and groundwater) is relatively low. However, because a shortage of fresh water may affect our business activities, securing the necessary quality and amount of water is essential for the business operation of the Group. In addition, we have considered the seriousness of the water-related problems that have occurred frequently in recent years, such as flooding caused by typhoons or torrential rains, and the great impact of these problems. We manage the risks related to these problems accordingly.
We implement measures for reducing water risks at individual facilities. To secure water resources, we save water through measures including the recycling of water, the introduction of equipment with low water consumption, and the renovation of equipment to reduce water consumption. To counteract the risk of flooding, we take initiatives including the elevation of buildings, pumps, and electric equipment, the installation of drainage pumps, as well as the implementation of disaster drills assuming high water events. We also take measures to prevent abnormalities in the quality of the effluent from our facilities and to prevent water quality accidents. These measures include the management of effluent under our own standards that are stricter than laws and regulations, as well as the introduction of sensors that detect abnormal water quality and a system that stops water discharges automatically.

State of water risk assessment initiatives

To ascertain the state of water risks at the Group's manufacturing facilities (including some research institutes), we are utilizing the Aqueduct water risk assessment tool developed by the World Resources Institute (WRI) to conduct individual risk assessments for each facility, covering various water risks including those relating to securing water resources and those of incurring flood damage.
Additionally, in order to ensure that water risk assessments are in line with actual conditions at these facilities, we supplement the results of water risk assessments performed using Aqueduct by taking into account the history of any past water risk manifestations at each facility (history of occurrences of flood, drought, and water supply quality deterioration, etc., at each location) and information on water usage associated with business activities (amount of fresh water and groundwater used, emissions of pollutants contained in wastewater).
The results of these supplemented water risk assessments are used to produce visual representations of water risks for each facility, using radar charts displaying risk scores for each assessment item, and shared with each business location. Each business site registers items assessed as high risk as risk factors for that particular facility, and engages in risk management by planning and implementing measures including the reduction of water risks.

Example radar chart showing water risks for each facility

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"Water quality risks" are assessed separately for both water supply and wastewater, from the viewpoints of impact on operations due to the deterioration of water supply water quality and impact on the environment due to wastewater at business sites. "Regulatory and reputation risks" are also assessed for both water supply and wastewater, from the perspectives of toughness water supply and wastewater regulations and the reputation of the region.

MMC