Scenario Analysis of Urban Development and Resort Businesses(TCFD scenario analysis under the support program of the Ministry of the Environment in FY2018)

Tokyu Fudosan Holdings Corporation

Publication date	June 18, 2020 (Posted on June 21, 2022)

Company Overview

Climate Change Impacts

The TCFD recommendations require scenario-based analyses of business risks posed by the physical impacts of climate-change (physical risks) and risks associated with the transition to a low-carbon economy (transition risks).
Physical risks and opportunities that we expect include: frequent heat stroke and increased operating costs due to the rise in average temperatures from the use of air conditioning, the flooding risk of facilities due to the rising sea levels, an increase in repair costs for the destruction of buildings, and an outflow of customers due to frequent wind and flood damages caused by typhoons or “guerrilla (torrential) rainstorm”. Transition risks include the impact of tighter government policies, social impacts, and the impact of technology development.

Adaptation Initiatives

We participated in the project supported by the Ministry of the Environment in FY2018 and conducted scenario analysis for our urban development and resort business (resort hotels, golf courses, ski resorts). Below is the summary of the analysis.

①Assessment of the Significance of Risk

We assessed the significance of future risks and opportunities of climate change (Fig. 1) and we expect the following transition and physical risks. Physical risks with a large impact include the chronic risk of a rise in average temperatures and sea levels, and the acute risk of the extreme weather becoming more severe. These factors may cause frequent heat stroke, increased operating (air conditioning) costs, increased risk of flooding of facilities, increased repair costs due to building destruction caused by frequent wind and flood accidents, and customer runoff. Transition risks that are expected to have a large impact include stricter policies (such as introduction of carbon tax and regulations for ZEB, Note 1), social impact (changes in consumer needs and reputation among consumers and investors), and technology development (development and spread of ZEB technology and energy-saving/renewable energy.)

②Definition of Scenario Groups and Business Impact Evaluation

After the "① Assessment of the significance of risk" described above, scenario analysis was conducted for the 4°C scenario and the 2°C scenario. For the urban development business, 2030 was set as the target year because the purpose was to examine our future core business in the medium-term planning period from the perspective of scenario analysis . As for the resort business, 2050 was set as the target year, since the differences in physical risks will become more evident and our purpose was to examine the impact of physical risks and future countermeasures. Below is the overview.
In the 4°C scenario, the transition to a low carbon society and spread of renewable energy is not making much progress, and natural disasters are assumed to become more severe. Thus, it was evaluated that environmental changes (physical risks) would have certain impacts on business. As an example, in urban development projects (2030), the increase in wind and flood damage would cause a decline in the valuation of some properties and increase in development costs. However, taking countermeasures such as making buildings resilient to wind and flood damage and promoting them to customers could provide opportunities to differentiate our business from competitors. One example of the impact on the resort business (2050) would be the decline in ski resort revenues and shorter business hours because of the decreased snowfall. However, this could also be an opportunity to differentiate our business from competitors by introducing advanced snowmaking machines and indoor resorts.
Under the 2°C scenario, the introduction of policies and tightened regulations on low carbon emissions will show progress, the introduction of ZEB and renewable energy will spread further, and natural disasters are assumed to be less severe. Therefore, it was evaluated that stricter laws and regulations (transition risk) will have certain impact on business. One example of the impact on both businesses is the costs associated with the introduction of carbon tax, but the high environmental performance of the buildings will differentiate our business from other companies and provide opportunities for the use of renewable energy.

(Note 1) ZEB is an abbreviation for Net Zero Energy Building and is pronounced as "zebu." It refers to buildings that aim to reduce the annual balance of primary energy consumed by the building to zero while maintaining a comfortable indoor environment.

Effects / Expected Benefits

By conducting scenario analysis, we were able to assess the climate-related risks and opportunities and clarify the options for strategies and countermeasures to be taken in the close future.

(This article is based on the activities in FY2018.)