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Climate Change Scenario

The Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD) asks all companies to assess climate-related risks and opportunities using climate change scenarios, and to reflect and disclose them in their business strategies and risk management. The Kyocera Group endorses the TCFD recommendations. We have established a governance system, implemented risk management and set targets, carried out scenario analyses, and are discussing business strategies based on the results.

TCFD logo

Governance System

The Kyocera Group has ranked climate change as one of our priority management issues. The CSR Committee (twice a year), which is attended by our top management, deliberates such matters as the setting of long-term environmental goals and strategies aimed at achieving them.
In addition, we share our climate change policy at the Kyocera Group International Management Conference (twice a year).

Social Context

The Kyoto Protocol in 2005 established international rules for climate change measures, and the Paris Agreement in 2016 sparked further international action, with each country setting climate change goals. Since 2020, some regions have begun to set carbon-neutral targets. The SBT Initiative also revised the levels of its targets in October 2019. Recently, many companies also have targets for climate change, with more companies affirming their goals to achieve the global 1.5℃ target (preventing the rise of global temperatures exceeding 1.5℃) and Renewable Energy 100% (RE100), which is an initiative to bring together hundreds of businesses committed to 100% renewable energy. In addition, an increasing number of companies are demanding that their suppliers strive to achieve the 1.5℃ target and declare their support for RE100.

SBT target level Overview Certified
2℃ level Linear 1.23%~2.5% reduction per year from the base year Until September 2019
WB2℃ level Linear 2.5%~4.2% reduction per year from the base year From October 2019
1.5℃ level Linear over 4.2% reduction per year from the base year

Japan has declared to become carbon neutral by 2050. The outline of the “Green Growth Strategy Towards 2050 Carbon Neutrality (Draft)” is as follows.

Field Overview
Solar power

Promote the development of next-generation solar cells for widespread adoption by 2030.

Promote research and development of next-generation geothermal power generation technology.

Next-generation power management industry

Enhance regulatory measures such as mandatory compliance with energy conservation standards, including for housing.

Promote and build energy resource aggregation businesses and next-generation grids by utilizing digital technology and market functions.

Hydrogen & ammonia fuel industry

Utilize the Green Innovation Fund to promote integrated experimental trials of inexpensive transportation technology and hydrogen power generation technology, for which there is expected to be significant demand.

The development of fuel cell technology will improve performance while simultaneously expanding the market.

Semiconductor & telecommunications industries

Support for research and development of power semiconductor devices.

Automotive & battery industries

For commercial vehicles, by 2030, 20-30% of new light-duty vehicles sold will be electric vehicles, and by 2040, 100% of new light-duty vehicles sold will be electric vehicles or decarbonized fuel vehicles. In addition, technology verifications and the adoption of hydrogen fuel for large vehicles by 2030 will be used to establish a target for the widespread adoption of electric vehicles by 2040.

Support large-scale investment in storage batteries (100 GWh), the introduction of electric vehicles (EVs) and fuel cell vehicles (FCVs), the establishment of charging infrastructure (150,000 units) and hydrogen stations (1,000 units), and the restructuring of supply chains and value chains.

Source: Excerpt from the points to be realized (summary) in the “Green Growth Strategy Towards 2050 Carbon Neutrality” (Draft) published by the Ministry of Economy, Trade, and Industry on June 2, 2021

Assessing the Impact of Climate Change on Our Businesses

The Kyocera Group incorporates climate change risks into our company-wide risk management. As a method of assessing risks and opportunities, we categorize requirements from sources such as trends in the global community and our stakeholders’ expectations of us, consider what is important to our stakeholders and what is important to the Kyocera Group, and then rate the impact into three levels, with items having a big impact ranked as “Major.”

(Excerpts of the major and medium assessment items)

Items Risks and opportunities for the Kyocera Group
(Risk / Opportunity)
Assessment
Transition risks (Policy risks) Policy Each country's carbon emission target/energy policy
  • Increased renewable energy demand due to stricter targets in each country, leading to business expansion.
  • If these stricter targets are more stringent than Kyocera’s targets, the Kyocera Group will have to take additional measures in accordance with these targets.
Major
Carbon tax
  • If a carbon tax is introduced, the demand for renewable energy will increase, leading to business expansion.
  • There is a concern that the introduction of a carbon tax will see Kyocera's manufacturing costs increase temporarily.
Medium
Technology Energy-related businesses
  • Increased demand for renewable energy due to society-level decarbonization will lead to business expansion.
  • The development of renewable energy, power management, and hydrogen technology will lead to business expansion.
  • There is a concern that research and development expenses will increase due to intensifying competition in the development of energy-related technologies.
Major
Semiconductor & telecommunications, automobiles, storage battery business, etc.
  • More sophisticated controls and expansion of digital technologies such as AI, IoT, and smart cities will lead to increased demand.
  • Increased demand for storage batteries with the introduction of renewable energy and the increased adoption of EVs, leading to business expansion.
  • There is a concern that increased capital investment to accommodate increased production.
Major
Market What customer’s want
  • There is a possibility that the components business will also adopt carbon-free targets, which will lead to business opportunities and risks depending on whether or not we can comply with said targets.
Major
Reputation Longer product life
  • Long-term operation of photovoltaic power generation equipment will become the norm, and reliability based on long product life has been reaffirmed, leading to increased demand.
Medium
Physical risks Acute Intensified extreme weather
  • There is a concern that costs such as those resulting from suspension of operations, reduced production, and equipment restoration are incurred due to natural disasters.
  • Increased costs such as those of natural disaster mitigation measures and insurance premiums.
  • Promoting natural disaster mitigation measures will lead to increased trust from customers.
Medium
Chronic Changes in precipitation patterns and rises in average temperature.
  • There is a concern that our manufacturing capacity will decrease due to water shortages, etc.
Medium

Scenario Analysis

We conducted a scenario analysis to ascertain Kyocera's future risks and opportunities related to climate change and tie them to our business strategy. In the scenario analysis, we considered international recognition and reliability and created original WB2℃ and 1.5℃ scenarios as well as 4℃ and 2℃ scenarios with reference to the following literature before conducting our analysis for 2030.

Main references:
RCP8.5, RCP4.5, RCP2.6, IEA ETP 2DS, IEA ETP B2DS, IEA450, IEA NPS, IEA ETP 2017, IEA EPT NZE2050, IEA Sustainable Development Scenario, IEA WEO2019 Scenario, WRI Aqueduct Water Risk Atlas, Practical Guidelines on Flood Mitigation Planning in Consideration of Climate Change, etc.

Case Overview
4℃ A rise of 3.2 to 5.4℃ in 2100 compared to temperatures during the Industrial Revolution.
2℃ A rise of 0.9 to 2.3℃ in 2100 compared to temperatures during the Industrial Revolution.
WB2℃ Temperature rise well below 2℃ in 2100 compared to temperatures during the Industrial Revolution.
1.5℃ Temperature rise below 1.5℃ in 2100 compared to temperatures during the Industrial Revolution.

4℃ Case

Government policies on climate change remain unchanged, power companies continue to generate electricity from fossil fuels, and CO2 emission factors do not decline. In addition, technological development will not progress in the energy industries, such as for photovoltaic power generation systems, storage batteries, and fuel cells, and society and customer decarbonization do not progress. In the semiconductor and telecommunications businesses, etc., technological development will advance, and production capacity will expand, and digital technologies such as AI, IoT, and smart cities will continue to grow. As a result, energy-related businesses will slow down, and the actual physical risks that become apparent will increase business continuity plan (BCP) countermeasure costs and raw material procurement costs.
The cost of physical risk countermeasures will increase, so ultimately, the final profit will decrease. However, while the increase in profits of energy-related businesses is small, note that this scenario is unlikely to occur because each country is engaging in efforts to achieve carbon-neutral targets.

4℃ Case

2℃ Case

Governments across the globe introduce support systems such as renewable energy, and electric power companies supply electricity with a low CO2 emission factor. Furthermore, technological development progresses in industries related to energy-related technologies such as photovoltaic power generation systems, storage batteries, and fuel cells. In semiconductor and telecommunications businesses, etc., technological development advances and production capacity expands, and digital technologies such as AI, IoT, and smart cities will continue to grow.
Although the physical risk is smaller than the 4℃ case, as the risk is thought to be larger. we will promote BCP measures based on the WRI Aqueduct Water Risk Atlas and the hazard map of the national government. Transition risk increases operational costs, such as increased payments for decarbonization. The number of suppliers affected by physical risks will increase, and this will increase raw material procurement costs.
As a result, the profits of energy-related businesses will increase, we believe that the increase in profits is likely to be offset by the cost of risk countermeasures.

2℃ Case

WB2℃ Case

Governments across the globe introduce support systems for renewable energy, and electric power companies supply electricity with a low CO2 emission factor. In industries related to energy technologies such as solar power generation systems, storage batteries, and fuel cells, companies promote technological development, strengthen collaborative efforts with electric power companies, and advance the use of renewable energy such as VPP technology and engage in efforts to support the creation of regional microgrids. In the semiconductor and telecommunications businesses, etc., technological development will advance, and production capacity will expand. We will also see further expansion of digital technologies, such as AI, IoT, and smart cities, demand forecasting of production planning electric power through DX visualization, and the stabilization of renewable energy imbalances.
Physical risks are thought to present less damage than in the 2℃ case, and BCP measures will be promoted based on the WRI Aqueduct Water Risk Atlas.The risk of transition is likely to increase, for example, carbon tax payments.
As a result, revenues from energy-related businesses exceed the cost of risk management due to decarbonization of society, and the final profit increases.

WB2℃ Case

1.5℃ Case

Governments across the globe introduce support systems such as for renewable energy, and electric power companies take efforts toward “Net Zero,” with decarbonization making further strides. In industries related to energy technologies, such as solar power generation systems, storage batteries, and fuel cells, companies collaborate with electric power companies and provide them with renewable energy, as well as engage in efforts to support the creation of regional microgrids. In the semiconductor and telecommunications businesses, technological development will progress, and production capacity will expand. In society, digital technologies such as AI, IoT, and smart cities grow, demand forecasting of production planning electric power through DX visualization and stabilizing renewable energy imbalance will be improved, and decarbonization will take further strides.
Physical risks are thought to be not so big, and BCP measures will be promoted based on the WRI Aqueduct Water Risk Atlas. As a result, decarbonization of society will increase the earnings of energy-related businesses and the impact of physical risks will be small, thereby the final profit increases.

1.5℃ Case

Estimated financial impact for each scenario image

4℃ Case
Graph: 4℃
2℃ Case
Graph: 2℃
WB2℃ Case
Graph: WB2℃
1.5℃ Case
Graph: 1.5℃
  4℃ Case 2℃ Case WB2℃ Case 1.5℃ Case
Increase in profit Small Intermediate Intermediate Large
Costs of measures against risks Intermediate Intermediate Intermediate Intermediate

Degree of financial impact Large: JPY 10 billion or more, Intermediate: JPY 1 to 10 billion, Small: JPY 1 billion or less

Social Issues and Solutions

In order to contribute to the decarbonization of society, Kyocera believes that it is necessary to expand the production capacity of semiconductors and electronic parts along with the development of virtual power plant (VPP)-related technologies, technologies to improve power generation and storage efficiency. Furthermore, mass production of storage batteries and technologies related to alternative energy, power management, hydrogen technology, storage batteries, etc., are also necessary. As a means of solving social issues, Kyocera will continue to resolve “economic issues” and “technical issues” surrounding renewable energy. Furthermore, as an in-house measure, Kyocera will clarify issues related to government policies, markets, reputation, and physical risks and continue to take action to resolve said issues.

Social Issues and Solutions

Economic Issues Provide inexpensive renewable energy

Solution: Establishment of Kyocera EPA LLC, and Kyocera Kanden Energy LLP

Kyocera EPA LLC has launched services aimed at companies that wish to adopt renewable energy and operators that supply electric power services. With a focus on new, detached residential buildings, Kyocera Kanden Energy LLP has launched services that make it possible to install solar power generating systems with no initial outlay.

Technological Issues Secure locations where solar power generating systems can be installed, stabilize electric power from renewable energy, which is affected by weather conditions

Solution: Leverage self-consignment for the transmission of renewable energy from external sources

When a site cannot be secured for a solar power generating system, renewable energy can be used by the “self-consignment” of electric power from solar power generating systems located elsewhere.

Solution: Clay-type Li-ion storage battery cells used in tandem with solar power generating systems

Kyocera plans to stabilize electric power from renewable energy by developing long life, very safe, low-cost storage batteries that are easy to link up and use in tandem with existing solar power generating systems. Private power consumption will also expand when surplus power produced by solar power generating systems and fuel cells is saved to storage batteries.

The 2030 energy mix proposal in Japan is based on the assumption that the Net Zero Energy House (ZEH) will be standardized energy-saving houses.

The 2030 energy mix proposal in Japan is based on the assumption that the Net Zero Energy House (ZEH) will be standardized energy-saving houses.

Means to resolve company issues

Policy issues

Solution: Introducing energy saving and optimizing electric power supply and demand with DX

To respond to the introduction of a carbon tax related to decarbonization, we are introducing solar power and fuel cells at Kyocera and are promoting RE100 initiatives at some locations. Going forward, we will use DX to optimize electric power demands in order to improve our own energy management.

Policy, market, and reputation issues

Solution: Examine the renewal of our long-term environmental target

The Kyocera Group's long-term environmental target has been certified by SBT at the 2°C level, but due to social conditions, customer demands, and the expansion of the renewable energy business, we have established a Task Force on Examining the Renewal of Long-Term Environmental Targets. This Task Force is examining setting stricter targets than our long-term environmental target (30% reduction in CO2 emissions in 2030 compared to FY2013).

Market and Reputation Issues

Measures against physical risks

Solution: Risk analysis and implementation of countermeasures

With regard to acute physical risks, we will ascertain the possibility of disasters geographically, evaluate them using the formula below, and implement optimal measures such as installing water gates at each site.

Risk score = Σ (scope of damage impact, human damage, fires and explosions, environmental impact, recovery time, cost of damage to production, cost of damage to equipment) × coefficient of measures to avoid risks

For chronic physical risks, we will utilize the analysis results of international organizations such as Aqueduct Water Risk to examine measures for our entire supply chain.

「Aqueduct Water Risk Atlas」,世界資源研究所(WRI)

Source: “Aqueduct Water Risk Atlas”, World Resources Institute (WRI), https://www.wri.org (viewed on: July 6, 2021)