Sustainability - Disclosure based on TCFD recommendations
For many years, the Meiden Group has been aware of the major problem of climate change, and has worked to solve this problem through business. With regard to TCFD*, we endorsed the TCFD recommendations in June 2019, we began considering risks and opportunities according to the TCFD framework in 2020, and we are promoting the incorporation of this in our strategies.
As society places more emphasis on the issue of climate change, in Medium-term Management Plan 2024, which was released in FY2021, we pledged to “promote sustainability management,” and we aim to accelerate promotion of management and development of businesses to realize a carbon-free society.
The Sustainability Management Strategy Committee and the Sustainability Management Promotion Committee handle all general matters involving sustainability and these two committees explore potential strategies to enact for decarbonization. The manager in charge of Sustainability and the Sustainability Management Promotion Division both report on the content of these meetings twice annually to the Board of Directors and the Executive Officers’ Meeting. Alongside these efforts and as a way of managing the promotion of environmental activities within the Group, the Meiden Group Environmental Committee, which is chaired by a production manager, meets quarterly to uncover issues within the Company, set environmental goals, devise action plans, and discuss emergency responses in order to promote and monitor the deployment of concrete policies for environmental management.
To manage sustainability-related risks, the Sustainability Management Promotion Division , which is charged with promoting sustainability management, operates centrally with relevant departments to extract risks. The details of those risks are incorporated into all the risks managed by the Governance Headquarters, which simultaneously manages a variety of risks, including those related to climate change.
The Sustainability Management Promotion Division analyzes climate change scenarios in conjunction with relevant departments. The scenario analysis examination process is divided into four parts, with analysis and evaluations conducted annually. At the same time, major factors that could impact business are identified, and identified risks, opportunities, and evaluations are reflected in our business strategy.
As recommended by TCFD, we identified scenarios at multiple levels of warming, including a scenario of less than 2°C, and conducted analysis accordingly. Based on the two scenarios of decarbonization (RCP1.9) and global warming (RCP4.5 and RCP8.5), we have arranged outlooks and specific scenarios for 2030 to accommodate each scenario using management frameworks such as five forces analysis, based on international published data from the IEA, IPCC, etc., as well as numerical data published by Japanese government institutions, etc.
We have set out factors for climate change risks and opportunities according to the outlook of each scenario, giving reference to the risks and opportunities in the TCFD recommendations.
We are evaluating business impact through discussions with relevant parties within the Company, such as the Corporate Policy Planning Group , the Accounting & Financing Group , the Corporate Governance Management Group , and business units, based on the scenarios and outlooks set out in Step 1 and the opportunities and risks set out in Step 2.
In the course of this, we screened matters that have a particularly large impact on businesses by focusing on the two axes of “impact on operating income” and “likelihood of occurrence in a business” in FY2030, and conducted detailed analysis of these matters. We assessed pre-countermeasure outcomes based on the rate of market growth in each scenario for each large-impact item. These were quantitatively calculated using partial assumptions, and items with unachievable results were organized qualitatively.
We considered development of strategies to grasp opportunities and measures to mitigate risks according to the situation of the Company, based on the outcomes calculated in Step 3.
Scope 3, Category 11 is emissions from product use and connects directly to our customer’s Scope 1 and 2 emissions. Developing and producing environmentally friendly products and services with a low carbon footprint through “a complete life cycle from material procurement through product use and disposal” will lead to the decarbonization of our Company, our customers, and society as a whole.
In FY2022, we worked systematically on LCAs (life-cycle assessments) of existing products, and have completed assessments for most products categories involved in social infrastructure. We concurrently revised our environmental assessment of products that includes LCA and continue reviewing standards for green products and preparing to develop super-green products that will represent the gold standard for the industry.
Our “High voltage products for GX” is a prime example of a package of products with a low carbon footprint. This system combines remote-monitoring functions with our high voltage feeder panel, high voltage transformer, and high voltage switchgear, all feature products designed to be environmentally friendly in order to reduce customer Scope 2. The high voltage feeder panel require no painting or welding in order to reduce the amount of harmful substances used, the high voltage transformer uses palm oil for insulation to reduce its strain on the environment, and the high voltage switchgear uses C-GIS that relies on dry air insulation and so does not use SF6.
Company GHG emissions from manufacturing and purchasing (Scope 3, Category 1) exist to some degree. Introducing a carbon tax within the Group can lead to increased manufacturing costs going forward and could potentially negatively impact profitability. According to the scenario assumed by TCFD, the following simulations represent the introduction of carbon tax when assuming that carbon emission increase with BAU (Business as usual) in 2030 for each scenario.
<Calculation conditions and results>
BAU sales in 2030 are calculated to be 340 billion yen (FY2021 baseline). With the decarbonization scenario (RCP1.9), introducing a carbon tax will result in operating income of 7.5 billion yen, a reduction of 2.2%. Such an introduction would significantly impact the Company, so it is vital to strategically reduce Scope 1, Scope 2, and Scope 3, Category 1. That is why the Company drafted the Second Meiden Environmental Vision in FY2021 and launched the following initiatives.
For Scope 1 and Scope 2, we plan to have 100% of domestic factories and 30% of overseas factories use renewable energy by 2030 (within the range of our normal investment activities, 8 billion yen in environmental investment by 2030) and predict that doing so will increase 2030 costs by 180 million yen. However, Scope 1 and Scope 2 emissions will be cut by 30%, with a projected 400 million yen relative improvement compared with pre-initiative estimates. We are exploring ways to minimize the remaining impacts that introducing a carbon tax would have on degraded operating income by examining the absorption of cost pass-throughs, etc., the prospect of generating wind power internally, the progress of additional decarbonization efforts within the Group, and more.
We see changes due to climate change as business opportunities, and are implementing strategies to mitigate risks.
From a business perspective, we will particularly contribute to the creation of a carbon-free society through further expansion of the EV and Renewable Energy businesses. We also released the Second Meiden Environmental Vision as our environmental goals in FY2021, and we have disclosed 2030 GHG reduction targets for scopes 1, 2, and 3 in order to reduce internal risks. These goals have received SBT recognition. We will work with our suppliers to achieve our targets. In addition, we pledged to reach RE100 by 2040 and carbon neutrality by 2050, in November 2021, as our medium- to long-term targets.
Meiden Group is taking the following actions to become carbon neutral by 2050.
Although we have identified the growth opportunities and risks facing the Meiden Group through analysis of scenarios based on the TCFD recommendations, in most instances, calculation of impact is merely a rough estimate, and further precision is needed. Furthermore, we are promoting response to climate-related metric categories across multiple industries in the TCFD recommendations, which require new disclosure. Along with this, we are considering establishing ESG (environment, social, and governance) metrics, incorporating them in our standards for calculating officers’ remuneration, and further strengthening governance, in order to increase the effectiveness of sustainability management promotion.
During the formulation of the Meiden Group’s FY2030 greenhouse gas emissions reduction targets, we conducted a simulation of net sales and emissions from a business portfolio revision regarding emissions in the product use stage (scope 3, category 11).
We found that by increasing the ratio of low carbon businesses with low emissions per unit of sales such as EV, maintenance services, and small and medium-sized hydropower generation, and we had a potential to comfortably achieve both increased sales and reduced emissions.
Internal carbon pricing is a mechanism that creates an economic incentive to reduce emissions and promotes investment by setting a carbon price in the company and using it to calculate the cost of greenhouse gas emissions.
Meidensha introduced an internal carbon pricing system in April 2021. We will convert carbon emissions from capital investment plans to expenses using an internal carbon price through the system. It will be a tool to make investment decisions. For now, we will make ad-hoc reforms starting from the following conditions.
