Response to Climate Change(TCFD Response)
In March 2023, erex expressed its support for the recommendations made by the Task Force on Climate-related Financial Disclosures (TCFD).
Following on from this endorsement, erex will reconfirm the environmental impact of its business activities and work to improve its information disclosure. In addition, the Sustainability Committee will play a central role in the Company’s efforts to become carbon neutral and its aim to achieve a sustainable society together with its stakeholders.
Items included in erex’s information disclosure are based on the framework developed by the TCFD and will be reviewed and improved upon annually through discussion by the Sustainability Committee.
1．Governance
Governance related to climate change has been integrated into general sustainability governance (see “Structures Promoting Sustainability Initiatives” on page 34 for details).
In fiscal 2023, the Sustainability Committee identified and assessed climate-related risks in line with TCFD recommendations and organized and reviewed measures to address them.
2．Strategy
To improve business resilience in the face of a distant and highly uncertain future, erex has assessed the impact of global average temperature increases on the Company, focusing on the power generation business, which is the Company’s mainstay business, by referring to the 1.5°C scenario (for example, the benchmark set by IEA’s net zero emissions NZE scenario to achieve decarbonization) and the 4°C scenario (for example, the IEA’s stated policies scenario, which predicts the future impact of prevail-ing emissions) to project potential outcomes for 2050, considering both risks and opportunities.
As a result, we assume that the demand for fuel will increase and have identified the growing demand for renew-able energy and biomass as a transition risk. Furthermore, we assume the possibility that the supply of fuels that meet renewable energy standards will not keep pace with
demand, and that the resulting increase in cost prices will have a significant impact on our business activities.
On the other hand, by promoting the development of various biomass fuels, such as through our new sorghum development project, and by strengthening in-house procurement of fuels that meet renewable energy standards, we expect that we will be able to procure raw materials at stable prices over the long term, and thus have an opportunity to expand sales by lowering our sales prices.
Since it is difficult to quantitatively evaluate the impact of climate change on our financial condition, we have qualitatively evaluated impact on three levels: major, moderate, and minor. We will continue to analyze climate change scenarios to improve the accuracy of our predictions regarding the degree of impact on our financial condition while strengthening our ability to respond to the risks and opportunities associated with climate change to make our business more sustainable.
Finally, we assume that risks and opportunities will emerge within three years for short-term predictions, beyond three years to 2030 for medium-term predictions, and after 2030 for long-term predictions.
Main Risks Related to Climate Change and Response Measures
| Classification | Impact on the Company | Severity | Projected time frame | Countermeasures | |
|---|---|---|---|---|---|
| Conversion Risks |
Policy and Law (Orders and regulations for existing products and services) |
If there are changes to the regulations on fuels used for biomass power generation, erex may have to conversion to other fuels that maintain their status as renewable energy sources. In this case, the Company may incur costs associated with conversion to fuels that meet revised regulations, or the Company’s fuel costs may increase if it converts to higher cost fuels that meet the revised regulations. | Medium | Short term | To ensure a stable supply of PKS, erex takes the initiative to procure biomass fuels such as palm kernel shells (PKS) and wood pellets from overseas. In addition, the Company is working to obtain certifications that cover various aspects of supply chain management in relation to the protection of the natural environment and the sustain- able use of biomass fuels, such as obtaining Green Gold Label (GGL)* certification for PKS in 2020.
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| Increased reputational risk and costs associated with addressing unmet emission targets and inadequate disclosure information (including information on mixing fuels that have not received thirdparty certification and discrepancies in certified biomass ratios). | Medium | Short term | |||
| Technology (Replacing existing products and services with low-emission alternatives) |
As environmental awareness continues to grow, the supply of renewable energy is likely to increase. This could lead to an increase in the number of days that renewable energy output is curtailed, thereby leading to lower sales. | Small | Medium to long term | To lay the groundwork for achieving carbon neutrality in 2050, erex will promote and monetize its hydrogen power generation demonstration project, invest in renewable energies other than biomass, and optimize sales price and volume. | |
| Markets (Increased cost of raw materials) |
While demand for fuels is likely to increase in response to a growing demand for renewable energy and biomass power generation, the supply of fuels that meet renewable energy standards may not keep pace with demand, resulting in an increase in the cost of fuel. | Large | Short term | Erex will promote the development of various biomass fuels by strengthening its in-house procurement of fuels that meet renewable energy standards and through its projects to develop fuels such as new sorghum. | |
| Reputation (Increased stakeholder concerns or negative stakeholder feedback) |
An inadequate response to climate-related issues or information disclosure requirements may cause a decline in share prices or a loss of investors, leading to increased financing costs, or a decrease in company value. | Medium | Short term | In its management plan, the Company has set a target to reduce carbon emissions by 25 million tons in 2030. It also aims to reduce in-house greenhouse gas (GHG) emissions and promote avoided emissions through its biomass business. | |
| Physical Risks |
Acute risk (Increased severity and frequency of extreme weather events such as cyclones and floods) |
Increasingly severe windstorms and floods may cause damage to biomass fuel production plants or cause disruptions in the supply chain, thereby impeding fuel procurement and power plant operations, resulting in a decrease in sales. | Medium | Medium to long term | To mitigate the risk of power plants becoming inoperable due to supply chain disruptions, erex procures fuel from multiple countries and sales channels. |
| Increasingly severe windstorms and floods may damage power generation facilities, thereby causing them to cease operations and resulting in a decrease in sales. | Medium | Medium to long term | It has been confirmed that the inundation depth during storm surge and flood in the area where the power plant is located will not change significantly from the current inundation depth predictions of 1.5ºC and 4ºC in 2050. In addition, in preparation for emergency situations, erex will conduct thorough risk management for its personnel, such as securing evacuation routes, and it will incorporate business continuity planning measures into its contingency plan as necessary.
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Opportunities Related to Climate Change and Response Measures
| Classification | Impact on the Company | Severity | Projected time frame | Countermeasures | |
|---|---|---|---|---|---|
| Opportunities | Technology (Replacing existing products and services with low-emission alternatives) |
The introduction of policies promoting a shift to power grids that capitalize on the potential of renewable energy will likely lead to fewer days of output control and increase revenues. Earnings will increase through the development and practical application of a business that improves the efficiency of energy management systems that utilize storage batteries. |
Medium | Middle to long term | To lay the groundwork for achieving carbon neutrality in 2050, erex will promote and monetize its hydrogen power generation demonstration project, invest in renewable energies other than biomass, and optimize sales price and volume. |
| Cost of sales will likely decrease as new technologies develop biomass fuels with higher power generation efficiency that lower the cost per unit of electricity generated. | Medium | Middle to long term | Erex has established biomass R&D centers in Japan and Vietnam to promote the in-house development of various biomass fuels, for example, new sorghum.* | ||
| An increased need for bioenergy with carbon capture and storage (BECCS) will likely increase the demand for biomass power generation, resulting in higher sales. | Small | Middle to long term | To lay the groundwork for achieving carbon neutrality in 2050, erex will promote demonstration and monetization of its hydrogen power generation project, investment in renewable energies other than biomass, and optimization of sales price and volume. | ||
| Markets (Increased cost of raw materials) |
Erex will be able to procure raw materials at stable prices over the long term by strengthening its own procurement of fuel that meets FIT standards, resulting in lower fuel costs. | Large | Short term | The Company will promote the development of various biomass fuels, for example, new sorghum.* | |
| Reputation (Changes in customer behavior) |
The growing demand for renewable energy by companies and others working to address climate change will likely increase the need for electricity generated from renewable energy sources, including biomass energy, resulting in higher sales. | Large | Short term | Erex will undertake the challenge of non-FIT biomass power generation, while Evergreen Marketing Co., Ltd., an erex Group company, will sell carbon-free plans to RE100 member companies and other companies. | |
| Sales will likely increase as the country expands electrification as part of its response to climate change and demand for renewable electricity increases. | Small | Short term | |||
| Reputation (Increased stakeholder concerns or negative stakeholder feedback) |
By proactively addressing and disclosing the status of ESG issues and attracting ESG investment, the company’s value will likely increase as a result of higher stock prices. | Medium | Short term | In its management plan, the Company has set a target to reduce carbon emissions by 25 million tons in 2030. It also aims to reduce in-house GHG emissions and promote avoided emissions through its biomass business. |
3．Risk Management
The Sustainability Committee secretariat takes the lead in collecting and organizing information on the identification and assessment of risks and general response policies for risks and opportunities deemed significant. The Sustainability Committee uses this information to discuss and decide on matters before reporting to the Board of Directors.
In addition, the Company is currently considering the establishment of a risk management system that would aid in the refining and progressing of response measures to significant risks and opportunities related to climate change.
4．Goals and Indicators
Based on the GHG Protocol, the erex Group began calculating GHG emissions as an indicator for achieving carbon neutrality in fiscal 2021. The Company identified and organized its calculation methods for each relevant business activity and emission source and calculated its Scope 1, Scope 2, and Scope 3 emissions. Erex will continue to calculate its emissions and monitor the environmental impact of the Group’s operations.
Actual GHG emissions (Unit: t-CO2)
| Scope 1*1 | Scope 2 | Scope 3*2 | Total | |
|---|---|---|---|---|
| FY2021 | 4,975 | 3,990 | 3,008,877 | 3,017,842 |
| FY2022 | 483,134 | 1,391 | 1,980,456 | 2,464,981 |
In using GHG emissions as an indicator from now, it is important to recognize that GHG emissions could temporarily increase due to business growth, aggressive global expansion, and the Company’s project to gradually convert coal-fired power plants to biomass power plants.*3 Erex is working to reduce in-house GHG emissions through various initiatives while simultaneously working to increase emission reductions known as “avoided emissions” in the future. The erex Group defines avoided emissions as global carbon emissions that it can reduce through its business activities, for example, by offering carbon-free plans to its customers, and it estimates that avoided carbon emissions for the entire Group will be 25 million tons in 2030.
- *1 In August 2022, erex acquired the Itoigawa Power Plant (a coal-fired power plant) as part of its coal-fired power conversion plan. As a result, Scope 1 emissions increased from fiscal 2021 to fiscal 2022.
- *2 Scope 3 emissions decreased in fiscal 2022 due to a decrease in the amount of electricity sold.
- *3 Under erex’s coal-fired power plant conversion plan, the Group’s Scope 1 emissions will increase in the short term due to the purchase of coal-fired power plants. However, by partially converting coal-fired power plants to biomass power plants and increasing the ratio of biomass to fossil fuels used, erex can mitigate its increased Scope 1 emissions and contribute to the reduction of global GHG emissions (that is, through avoided emissions achieved by minimizing coal use).
- The forward-looking statements in this integrated report are based on certain assumptions that were considered reasonable at the date of submitting the Annual Securities Report. Actual results may differ significantly due to various factors.